Introduction to Transfer Pricing in the UAE
Transfer Pricing (TP) refers to the pricing methods applied to transactions between related entities under common ownership or control—covering the exchange of goods, services, and intangibles. The objective is to ensure these transactions follow market value standards in line with the arm’s length principle.
Regulatory Background
The UAE introduced comprehensive corporate tax laws through Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, effective June 1, 2023. As part of this framework, transfer pricing regulations were established, adopting the OECD Guidelines and the three-tier documentation approach from BEPS Action Plan 13.
These rules apply to both cross-border and domestic transactions, ensuring transparency and protecting against base erosion and profit shifting. Businesses must comply with transfer pricing rules to avoid penalties from the Federal Tax Authority (FTA), especially if they engage in related-party transactions.
Key Concepts Explained
✔ Arm’s Length Principle
Transactions between related entities must reflect pricing that unrelated parties would agree upon under open market conditions. Artificially low or high pricing to manipulate tax outcomes is strictly prohibited.
✔ Related Party Transactions
These include transactions between entities with common ownership or control—defined as 50% or more ownership, voting rights, or economic interest. Examples include:
- Sale and purchase of goods
- Provision of services
- Royalties and intellectual property payments
- Intra-group financing (loans, cash pooling, guarantees)
✔ Comparability Analysis
To ensure arm’s length pricing, businesses must perform a comparability analysis, assessing:
- Nature and terms of the transaction
- Functions performed by each party
- Risks and assets involved
- Contractual agreements
- Economic conditions of the market
On October 23, 2023, the FTA released the UAE Transfer Pricing Guide (TP Guide), offering practical insights aligned with OECD Guidelines to help businesses meet their compliance obligations.
Why Transfer Pricing Compliance Matters for Free Zone & Mainland Businesses
✔ Free Zones
Free zone companies, especially those enjoying a 0% corporate tax rate, must ensure their related-party transactions—domestic or international—meet arm’s length standards. Non-compliance could trigger tax adjustments and increased scrutiny from the FTA.
✔ Mainland Businesses
With the introduction of corporate tax, mainland businesses—particularly those in multinational groups—must maintain comprehensive transfer pricing documentation to demonstrate compliance with the arm’s length principle.
In both cases, failure to comply could result in tax penalties, adjustments, and intensive audits by the FTA.
Conclusion & Expert Support
Transfer pricing is now a cornerstone of UAE corporate tax compliance, ensuring fair and transparent pricing across related-party transactions. As the FTA continues to enhance its scrutiny, robust documentation and expert guidance are essential to avoid penalties and disputes.
Our Transfer Pricing specialists bring over 10 years of experience advising multinational groups across the region. Using accredited global databases (such as TP Catalyst and Bureau Van Dijk), we provide benchmarking, Local and Master File preparation, and strategic planning to future-proof your compliance.
Need expert help? Schedule your free consultation today:
📞 Call/WhatsApp:
📧 Email: tax@axiaprime.ae
References
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses
- Ministerial Decision No. 97 of 2023 on Transfer Pricing Documentation Requirements
- UAE Transfer Pricing Guide (2023)
OECD Transfer Pricing Guidelines