Transfer pricing is one of the most frequently misunderstood areas of the new UAE corporate tax framework. Any business with transactions between related parties — group companies, shareholders, connected persons — needs to understand its obligations. And those obligations are more extensive than most businesses expect.
What Is Transfer Pricing?
Transfer pricing refers to the prices set for transactions between related parties — intercompany sales, services, loans, IP licensing and other dealings between entities under common ownership or control. UAE corporate tax law requires that these transactions be conducted at arm's length — meaning on terms that would apply between independent parties dealing at market rates.
Who Is Affected?
Any UAE business that has transactions with a related party or connected person is subject to the arm's length requirement. Related parties include: companies under common ownership, companies with a 50%+ ownership link, partnerships and their partners, individuals who own 25%+ of the company, and directors or officers with significant influence. If you charge management fees to a subsidiary, sell goods to a group company, or receive loans from shareholders, transfer pricing rules apply.
Documentation Requirements by Entity Size
Masterfile: required for businesses with consolidated group revenue of AED 3.15 billion or more. Local file: required for businesses with related party transactions exceeding AED 40 million per transaction type (or AED 200 million total). Disclosure form: required for all businesses that have related party transactions, regardless of value. The disclosure form is filed with the tax return. PRF prepares all three document types.
The Arm's Length Analysis
Arm's length pricing requires identifying the most appropriate transfer pricing method for each transaction type — comparable uncontrolled price, cost plus, resale price, transactional net margin method or profit split. This requires functional analysis (who does what, who bears risk) and comparability analysis (finding comparable transactions or companies). PRF prepares arm's length analyses that meet FTA and OECD standards.
Common Transfer Pricing Issues in UAE Groups
Shareholder loans at non-market interest rates. Management fees that cannot be supported by a benefits test. IP licensing at rates that don't reflect economic value. Service charges between group entities without formal agreements. Distribution margins that don't reflect actual functions and risks. These are the areas the FTA looks at first in a transfer pricing review.
Country-by-Country Reporting
UAE groups with consolidated revenue of AED 3.15 billion or more must file Country-by-Country Reports (CbCR) with the FTA. The CbCR provides a breakdown of the group's revenue, profit, tax paid and employee numbers by jurisdiction. UAE is also a signatory to the BEPS Inclusive Framework, meaning CbCR data is shared with other tax authorities.
Penalties and FTA Scrutiny
The FTA has made transfer pricing a priority area for review. Failure to maintain documentation, non-disclosure of related party transactions and pricing that cannot be supported by an arm's length analysis all carry penalties and the risk of tax adjustments. PRF's TP documentation is prepared to withstand FTA scrutiny and to defend client positions in the event of a challenge.