Today, many companies start in one country and slowly expand into other markets. As these businesses grow across borders, they set up branches, subsidiaries, and group companies that must work together and exchange goods, services, funds, and intellectual property. Because these internal transactions increase as groups expand, businesses in the UAE now face the growing responsibility of managing transfer pricing correctly.
Since the UAE introduced corporate tax and adopted transfer pricing rules that follow international OECD standards, companies are now required to keep full transparency and follow fair pricing between related entities. These rules were introduced to prevent profit shifting, improve tax fairness, and bring the UAE in line with global tax practices.
This blog explains transfer pricing in a simple and clear way, focusing on the UAE’s rules, why they are important, the main challenges businesses face, and practical steps companies can take to stay compliant without unnecessary stress with the support of Corporate Tax Services and Corporate Tax Services in Dubai.
Understanding Transfer Pricing in the UAE
What Is Transfer Pricing?
Transfer pricing refers to the pricing of goods, services, assets, or funding exchanged between companies that are connected or operate within the same group. Since related companies do not negotiate the same way independent companies do, tax authorities require these transactions to follow the arm’s length principle. This means the price should match what would be charged in a real market between unrelated parties.
Transfer pricing ensures transparency in financial reporting, helps countries collect the correct amount of tax, and prevents multinational companies from shifting profits to low-tax locations. It also ensures that profits are recorded in the country where the actual value is created.
Transfer Pricing in the UAE Context
UAE’s Transfer Pricing Rules Under Corporate Tax
In December 2022, the UAE issued Federal Decree-Law No. 47 of 2022, introducing corporate tax and formal transfer pricing rules. These rules took effect from June 2023 and follow the same approach used in OECD guidelines.
Key requirements include:
- Article 34: Ensures all related-party dealings meet the arm’s length principle.
- Article 35: Defines who qualifies as a related party or controlled entity.
- Article 36: Sets rules for payments made to connected persons.
- Article 55: Explains documentation requirements for Master File, Local File, and disclosure forms.
Core UAE Transfer Pricing Requirements
Arm’s Length Principle:
UAE businesses must prove that transactions with related parties follow market conditions. All terms, such as pricing, risk, and responsibilities, must be comparable to dealings with independent businesses.
TP Documentation:
Depending on certain conditions, companies may need to maintain three types of documentation:
- Master File: Gives a global overview of the multinational group, its business, structure, transfer pricing policies, and use of intellectual property.
- Local File: Focuses on the UAE entity, showing detailed descriptions of each related-party transaction, financial results, and benchmarking.
- Disclosure Form: Submitted with the tax return, summarizing the company’s related-party transactions and methods used.
Country-by-Country Reporting (CbCR):
Large multinational groups headquartered in the UAE with revenue of AED 3.15 billion or more must file a CbC report showing how profits and activities are distributed across countries.
Who Must Comply?
The following entities are covered by UAE transfer pricing rules:
- Mainland companies with related-party transactions
- Free zone businesses conducting dealings with related or connected persons
- Multinational groups with cross-border intercompany transactions
- Smaller UAE entities that must still follow arm’s length pricing, even if they are below documentation thresholds
Even if documentation is not mandatory, companies must maintain reasonable support for intercompany pricing.
Key Challenges in Transfer Pricing
Compliance-Related Challenges
Many businesses face confusion when applying the rules, especially when determining related parties, identifying connected persons, and checking which transactions reach the required thresholds. Since penalties apply for incorrect information, missing documentation, or non-arm’s length pricing, companies must be very careful.
Documentation-Related Issues
Preparing detailed documentation like Master File and Local File requires a lot of analysis and information. This includes pricing policies, agreements, benchmarking studies, financial breakdowns, and explanations of business functions. Collecting this information across group entities can be complicated and time-consuming.
Valuation & Pricing Challenges
Identifying suitable market comparable for items such as intellectual property, licensing, or specialized services is not always straightforward. Choosing the correct method, whether CUP, TNMM, Cost-Plus, Resale Price, or Profit Split, also requires a deep understanding of the company’s functions and risk profile. If incorrect methods are used, compliance risks increase.
Operational Challenges
Many companies are not equipped with systems that properly track related-party transactions. Without proper tagging or categorization in accounting software, generating accurate reports for annual TP disclosures becomes difficult.
In addition, many businesses lack internal staff with transfer pricing expertise, leaving them unprepared to handle documentation or defend their pricing positions during audits.
Strategies for Navigating Transfer Pricing Challenges in the UAE
To manage risks effectively, companies should follow a structured approach that supports ongoing compliance.
Strengthen Internal Systems and Processes
Businesses should implement a clear internal approach for identifying related-party transactions and documenting them properly. Regular reviews help ensure no major transaction is overlooked.
Maintain Strong Documentation
Preparing Master File and Local File early, even when thresholds are not crossed, is always beneficial. Keeping agreements, benchmarking research, invoices, and supporting evidence well-organized helps during tax audits and prevents penalties.
Conduct Regular Pricing Reviews
Companies should update their benchmarking studies and test their transfer pricing annually. This ensures prices remain aligned with market conditions and reduces the chance of adjustments later.
Upgrade Data and Reporting Systems
Improving accounting software and ERP systems can help track related-party transactions more accurately. Automation tools can also reduce manual work and ensure data integrity.
Seek Guidance from Professionals
Working with specialists who understand UAE corporate tax and transfer pricing regulations can save businesses a lot of time and prevent costly errors. Professional support is especially important for transactions involving intellectual property, financing arrangements, shared services, or complex structures.
Conclusion
As the UAE continues its shift toward a modern corporate tax environment, transfer pricing UAE compliance has become a key responsibility for businesses. Whether operating on the mainland, in a free zone, or as part of a large multinational group, companies must ensure transparency and accuracy in how they price intercompany transactions.
Although the rules can feel complex, especially for companies dealing with documentation and benchmarking, the risks can be managed effectively through proper planning, strong internal controls, accurate documentation, and professional guidance from experienced firm like Reyson Badger. By staying proactive and following the arm’s length principle, businesses can minimize compliance risks, avoid penalties, and confidently meet the UAE’s transfer pricing expectations.
