In the UAE, transfer pricing is not just an accounting exercise—it’s a compliance and risk management discipline. Since the introduction of corporate tax rules and BEPS-inspired guidance, related-party transactions must reflect market prices and robust documentation. Firms that neglect Transfer Pricing rules face penalties, audits, and potential disruptions to tax incentives, including Free Zone exemptions. A proactive, well-documented Transfer Pricing framework protects margins, supports strategic decisions, and reduces regulatory surprises.
What is Transfer Pricing in the UAE?
- Definition: Transfer pricing is the price charged for goods, services, or funding between entities that are part of the same corporate group (for example, a parent and its subsidiary).
- Arm’s Length Principle: In the UAE, related-party pricing must resemble the prices that would be charged to independent third parties.
- Legal backdrop: The UAE implemented structured transfer pricing rules in 2023 under Federal Decree-Law No. 47 of 2022 (Corporate Tax Law). A Taxable Person must prepare both a Master File and a Local File for a Tax Period if it is part of an MNE Group with consolidated revenues of AED 3,150,000,000 or more, or if the Taxable Person’s own revenue in the period is AED 200,000,000 or more; Country-by-Country Reporting also applies where the MNE Group’s consolidated revenues meet the AED 3.15 billion threshold.
Why Transfer Pricing is Important in the UAE?
- Prevent profit shifting: The objective is to ensure profits are taxed where value is created, not diverted to low-tax jurisdictions.
- Compliance discipline: Comprehensive documentation, such as master and local files, supports determinations and reduces dispute risk.
- Regulatory credibility: Clear, auditable pricing policies bolster governance and investor confidence.
- Risk mitigation: Proper Transfer Pricing reduces the likelihood of retroactive adjustments, penalties, and tax disputes.
- Penalties for transfer pricing non-compliance
What Counts as Non-compliance?
- Missing documentation deadlines
- Using inappropriate or unsupported pricing methods
- Failing to file required forms or disclosures
- Inadequate record-keeping or data gaps
What are the Penalties?
- Adjustments to taxable income: tax authorities may recompute profits, eroding margins.
- Denial of deductions for payments to connected parties
- Penalties depend on the specific offence: for example, Cabinet Decision No. 75 of 2023 sets administrative fines such as AED 10,000 for failing to keep required records (and other fixed or monthly penalties for late filing or non-compliance), while failure to submit the Country-by-Country Reporting notification can attract a separate, much larger administrative penalty (e.g., AED 1,000,000) under the relevant CbCR rules. Each penalty applies to a specific breach, so companies should check the applicable instrument for precise amounts.
- Transfer Pricing non-compliance can expose a Free Zone Person to tax adjustments or denial of specific deductions and, in serious or material cases that undermine the conditions for a Free Zone incentive, could affect the availability of that incentive - however, Free Zone tax treatment remains available where the entity continues to satisfy the statutory and substantive conditions set out in the Corporate Tax Law and implementing decisions.
- Increased audit frequency and heightened scrutiny by the Federal Tax Authority (FTA)
Timelines and deadlines
- Transfer Pricing disclosure forms must be submitted together with the Corporate Tax return - the return (and therefore the disclosure form) is due within 9 months from the end of the relevant Tax Period, so the exact date depends on the taxpayer’s year-end (for example, a calendar-year taxpayer with tax period ending 31 Dec 2024 would file by 30 Sep 2025). And requests can come at different times during the year.
How Entities are impacted by Penalties?
- Financial impact: penalties, back taxes, and interest can materially affect profitability.
- Operational impact: audits disrupt normal operations and may require rapid data collection and process changes.
- Reputation risk: non-compliance can affect stakeholder confidence and governance ratings.
How to Prevent Transfer Pricing Penalties: a Practical Playbook?
Identify related and connected parties
- Maintain a current, comprehensive roster of group entities and individuals involved in related-party transactions.
- Ensure you capture changes promptly (e.g., new subsidiaries, reorganizations, or changes in ownership).
Track and document transactions
- Record all related-party transactions with details: nature, price, terms, volumes, and timing.
- Establish clear intercompany agreements that reflect actual terms and conditions.
Conduct benchmarking studies
- Compare prices to an appropriate set of credible comparable to support arm’s-length pricing.
- Use robust methodologies (e.g., TNMM, CUP, RPM) and document choice of method, data sources, and adjustments.
Prepare robust TP documentation
- Master File: outlines the group structure, key value drivers, risk profile, and high-level transfer pricing policy.
- Local File: entity-specific information, controlled transactions, detailed FAR analysis, and transactional data.
- Disclosure forms and schedules to support the filing and any regulator requests.
Ensure timely filing and reporting
- Align TP documentation with tax returns and FTA reporting requirements.
- Prepare to respond within the window provided if the FTA or tax authority requests additional information (often within 30 days).
Proactive risk management and governance
- Regularly review and update Transfer Pricing policies to reflect changes in business models, markets, or law.
- Implement internal controls for data accuracy, transfer pricing calculations, and documentation quality.
Seek professional UAE transfer pricing services
- Experienced TP advisors can perform gap analyses, benchmark studies, policy design, and audit support.
- External experts help ensure compliance, defendability, and efficiency in pricing decisions.
What to do if you receive a Transfer Pricing Audit or Notice?
- Respond quickly with complete documentation and a clear narrative linking value creation to pricing.
- Engage a TP specialist early to coordinate with the FTA, prepare robust defenses, and minimize disruption.
- Focus on data integrity, transparent methodologies, and well-supported benchmark data.
Conclusion
Transfer pricing compliance in the UAE is an ongoing, strategic discipline, not a one-time exercise. Reyson Badger helps businesses identify related-party relationships, document transactions with rigor, and maintain up-to-date benchmarking and policies. This approach reduces penalties, streamlines audits, and unlocks tax efficiency. With expert UAE transfer pricing services, experienced providers can guide companies in building a compliant, business-friendly framework from planning to defense.
