Businesses operating across borders in the UAE face a critical challenge, proving their transactions with related parties are fair and market-driven. Transfer Pricing Rules tackle this head-on, preventing profit shifting and tax avoidance. Since UAE introduced corporate tax in 2023, these rules have become mandatory for everyone, from multinationals to SMEs with cross-border deals.
The goal? Arm’s length principle. Related entities must price goods, services, loans, or intangibles as if dealing with unrelated parties. Get it wrong, and the Federal Tax Authority (FTA) adjusts your profits, slaps penalties up to 200% of the tax shortfall, plus interest. Done right, Transfer Pricing Rules safeguard your tax position and build audit confidence. Let’s explore how they work and how you stay compliant.
Why Transfer Pricing Matters in UAE?
UAE’s economy thrives on trade hubs like Dubai and Abu Dhabi Free Zones. Groups centralize procurement, IP, or services here, creating intercompany flows. Without Transfer Pricing Rules, companies could undercharge affiliates to shift profits to low-tax spots.
FTA Cabinet Decision No. 55 of 2023 mandates arm’s length for all related-party transactions—domestic or international. Even UAE-only groups qualify if they hit thresholds. This aligns UAE with OECD standards, making it a magnet for global players.
Core Elements of UAE Transfer Pricing Rules
FTA requires three pillars: comparability analysis, documentation, and disclosure.
- Arm’s Length Methods: Pick the best fit—Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin (TNMM), or Profit Split. UAE favors TNMM for services, CUP for commodities.
- Comparability Factors: Match on functions, assets, risks, contract terms, economic circumstances, and business strategies. Geography matters less in UAE due to its open market.
- Documentation Thresholds:
- Master File: Groups with consolidated revenue ≥ AED 3.15 billion.
- Local File: UAE entities with related-party revenue ≥ AED 200 million or standalone revenue ≥ AED 3.15 billion.
- Country-by-Country Report (CbCR): Ultimate parents with ≥ EUR 750 million (~AED 3 billion).
Smaller firms disclose basics in tax returns but prep files on request.
Step-by-Step Compliance Process
Transfer Pricing Rules demand proactive work, so start early.
- Map Transactions: Identify all related-party deals. Quantify volumes, values, and nature (e.g., royalties, management fees).
- Conduct Analysis: Benchmark against databases like KtMINE or Bureau van Dijk. Aim for interquartile ranges. Document assumptions.
- Prepare Policies: Write a group TP policy. Test it annually.
- File Disclosures: Submit with Corporate Tax return. Attach Master/Local Files if triggered.
- Defend in Audits: FTA Advance Pricing Agreements (APAs) offer certainty for 3-5 years. Unilateral or bilateral—perfect for high-value deals.
Real example: A Dubai holding company charges IP royalties to its Singapore sub. They use TNMM, benchmarking against pharma peers, proving 5% markup is arm’s length. Audit passes smoothly.
Common Pitfalls and Fixes
Many trip up here:
- Ignoring Domestic Deals: UAE intra-group services count too.
- Weak Benchmarks: Use UAE/MENA data where possible; global if not.
- No Substance: Free Zone firms must prove economic activity.
- Timing: Prep by Q3 for year-end filings.
Fixes? Automate with TP software like Thomson Reuters ONESOURCE. Train finance teams. Outsource studies to pros.
Penalties sting: AED 10,000 for missing disclosures, up to 200% for adjustments. But voluntary corrections cut them by 50%.
2026 Updates and Trends
FTA’s 2025 guides clarify intangibles, hard-to-value intangibles (HTVI), and low-value services (safe harbor 5% markup). Expect more audits on services and financing. Align with Pillar Two for MNEs over EUR 750 million—15% global minimum tax looms.
Free Zones like DMCC push TP for QFZP status, tying into 0% qualifying income.
Advanced Strategies Under Transfer Pricing Rules
Optimize legally:
- Centralize procurement in Dubai for cost-plus efficiency.
- License IP to UAE holdcos at fair rates.
- Use cost-sharing for R&D.
- Routine services? Bundle under 5% safe harbor.
Always document business rationale, FTA rejects “tax avoidance” schemes.
Partner with Prema Consulting
Navigating Transfer Pricing Rules keeps your UAE operations tax-efficient and audit-proof. At Prema Consulting, we specialize in TP services tailored for UAE multinationals, Free Zones, and SMEs. From full documentation packages and benchmarking studies to APA negotiations and audit defense, our experts ensure arm’s length compliance without the hassle.
Check out our Transfer Pricing services and book a free TP health check today. Let’s align your intercompany deals with UAE rules and boost your bottom line.
