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Transfer Pricing Solutions and Rules - United Arab Emirates

The United Arab Emirates (UAE) has implemented Transfer Pricing (TP) regulations under Federal Decree-Law No. 47 of 2022 on Corporate Taxation, which became effective from 1 June 2023.

Subsequently, the Federal Tax Authority (FTA) released the Transfer Pricing (TP) Guide on October 23, 2023, broadly aligning the UAE TP provisions with the Organization for Economic Cooperation’s TP Guidelines for Multinationals and Tax Administrations (OECD TP Guidelines) and highlighting some UAE-specific TP requirements.

These regulations ensure that transactions between related parties and connected persons comply with the arm’s length principle—a fundamental requirement under the OECD Transfer Pricing Guidelines.

The UAE’s TP rules are designed to:

  • Prevent profit shifting and base erosion through non-arm’s length transactions.
  • Ensure that tax liabilities are fairly allocated based on economic activities.
  • Align UAE’s tax framework with international best practices.

The Federal Tax Authority (FTA) is responsible for monitoring compliance and has introduced detailed documentation and reporting requirements based on business size and revenue.

Transfer Pricing Documentation Requirements

The UAE TP regulations impose the following levels of documentation requirements in line with OECD’s BEPS Action 13:

(A) Transfer Pricing Disclosure Form

  • Taxable persons are required to complete the related party schedule in their tax returns if their total transactions with related parties exceed AED 40 million.
  • Individual transaction categories, such as goods, services, or interest, must be disclosed if they exceed AED 4 million each.
  • Transactions with connected persons must be disclosed if payments or benefits to each connected person exceed AED 500,000.
  • Includes details of related-party transactions and transfer pricing methods applied.

(B) Master File & Local File

  1. A taxable person that meets either of the following conditions in the relevant tax period shall prepare and maintain a MF and LF:
    • Where the taxable person, for any time during the relevant tax period, is a constituent company  of a Multinational Enterprises Group that has a total consolidated group Revenue of AED 3.15 billion or more in the relevant tax period; or
    • Where the taxable person’s revenue is AED 200 million or more in the relevant tax period.
  1. Taxpayers benefiting from the free-zone regime (0% tax rate) are also subject to the obligation to prepare and maintain their Transfer Pricing documentation to demonstrate that their related party operations comply with the arm’s length principle.
  2. The documentation must be prepared by the time the Taxable Person submits its Tax Return for the Tax Period in which the Controlled Transaction is undertaken.
  3. Master Files and Local Files must be made available to the FTA within 30 days upon request.

TP rules apply to all taxable businesses that engage in transactions with Related Parties or Connected Persons. Even if a business is exempt from tax or qualifies for small business relief, it must still follow TP rules but may not be required to maintain full TP documentation.

1. The arm’s length principlerequires that related-party transactions be conducted under terms similar to those agreed upon by independent entities in comparable circumstances.

2. The UAE follows OECD-approved TP methodsto assess compliance:

  • Comparable Uncontrolled Price (CUP) Method
  • Resale Price Method (RPM)
  • Cost-Plus Method (CPM)
  • Transactional Net Margin Method (TNMM)
  • Profit Split Method (PSM)

Apart from that, The UAE CT Law permits the use of other methods to determine the arm’s length price when none of the five recognised transfer pricing methods can be reasonably or reliably applied, as long as the chosen method complies with the arm’s length principle.

3. Some unique aspects of the UAE TP rules are outlined below:

  • The UAE TP rules recommend using the Interquartile Range (IQR) rather than the full range suggested by the OECD.
  • The FTA does not prefer a particular commercial database when searching for comparables, as long as the source is reliable and the geographical order for applying the comparables is followed (i.e., local, regional (Middle East), then other regions).
  • The UAE CbCR requirements are only applicable to MNE Groups headquartered in the UAE with consolidated group revenue equal to or above AED 3.15 billion during the fiscal year immediately preceding the reporting fiscal year.
  • The CbCR shall be filed within 12 months following the end of reporting fiscal year of the multinational entity groups (MNE) in line with the OECD TP Guidelines.
  • Apart from that, a notification must be submitted by the UAE-tax resident ultimate parent entity (UPE), on behalf of the UAE Constituent Entities, to the UAE MoF to indicate that it is the entity responsible for submitting the CbC Report and identifying the UAE Constituent Entities no later than the last day of the group’s reporting year.

The new transfer pricing rules also establish that companies shall submit a transfer pricing disclosure form as part of the annual corporate income tax return. Companies that fail to comply with the requirements may face penalties ranging from AED 10,000 to AED 100,000.

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