Transfer Pricing UAE: A Complete Guide to Rules, Methods and Compliance

Transfer pricing UAE has become an important consideration for businesses since the introduction of Corporate Tax. Companies that conduct transactions with related parties or connected persons need to understand how these transactions should be priced and documented.

The UAE Corporate Tax framework follows the arm’s length principle, which generally means that transactions between related parties should be conducted under conditions similar to those that would have been agreed between independent businesses.

For companies operating in the UAE, understanding transfer pricing requirements can help reduce tax risks, improve documentation and support accurate Corporate Tax reporting.

What Is Transfer Pricing in the UAE?

Transfer pricing refers to the pricing of transactions between companies or individuals that have a particular relationship with each other.

These transactions can include the transfer of goods, provision of services, financing, intellectual property, royalties, management fees and other commercial arrangements.

For example, suppose a UAE company receives management services from its parent company located in another country. The management fee charged should generally reflect an amount that independent parties would reasonably agree upon for comparable services.

The purpose of transfer pricing rules is to prevent related parties from using artificial prices to shift profits between entities or jurisdictions.

Therefore, UAE businesses with related-party transactions should assess whether their pricing arrangements comply with the applicable Corporate Tax requirements.

What Is the Arm’s Length Principle?

The arm’s length principle is the foundation of transfer pricing in the UAE.

Under this principle, the conditions of a transaction between related parties should be consistent with the conditions that would have applied if the parties had been independent.

In simple terms, a business should consider:

Would an independent company have agreed to the same price and terms for this transaction?

If the answer is no, the transaction may require further transfer pricing analysis.

The arm’s length principle can apply to various transactions, including:

• Sale and purchase of products
• Intercompany services
• Management fees
• Loans and financing
• Royalties
• Licensing arrangements
• Marketing services
• Shared expenses
• Intellectual property transactions
• Business restructuring arrangements

Businesses should maintain sufficient commercial and financial evidence to support their pricing decisions.

Who Is Subject to Transfer Pricing Rules in the UAE?

Transfer pricing rules can apply to UAE taxable persons that enter into transactions or arrangements with Related Parties and Connected Persons.

This can include companies dealing with:

• Parent companies
• Subsidiaries
• Sister companies
• Shareholders
• Directors
• Group companies
• Overseas related entities
• Other connected persons

Transfer pricing considerations are not limited to international transactions. Certain domestic transactions between related parties or connected persons may also fall within the UAE transfer pricing framework.

Businesses should therefore review their corporate structure and transaction flows instead of assuming that transfer pricing only applies to multinational companies.

What Are the Main Transfer Pricing Methods?

The UAE Corporate Tax framework recognises internationally accepted methods for determining whether a transaction meets the arm’s length standard.

1. Comparable Uncontrolled Price Method

The Comparable Uncontrolled Price (CUP) method compares the price charged in a controlled transaction with the price charged in a comparable transaction between independent parties.

This method can be effective when reliable comparable transactions are available.

2. Resale Price Method

The resale price method begins with the price at which a product is resold to an independent customer.

An appropriate gross margin is then deducted to determine an arm’s length purchase price.

This approach may be relevant for distribution businesses where the reseller does not significantly add value to the product.

3. Cost Plus Method

Under the Cost Plus Method, the supplier's relevant costs are identified and an appropriate mark-up is added.

For example, a UAE group company providing routine administrative or support services to another group entity may use a cost-plus approach where appropriate.

4. Transactional Net Margin Method

The Transactional Net Margin Method (TNMM) compares the net profit earned from a controlled transaction with the net profit achieved in comparable independent transactions.

TNMM is frequently considered where reliable gross-margin or direct price comparisons are difficult to obtain.

5. Transactional Profit Split Method

The Transactional Profit Split Method considers the combined profit from relevant transactions and allocates that profit between related parties based on their respective contributions.

This method can be relevant where both parties make significant contributions or own valuable assets.

The appropriate method depends on the nature of the transaction, available information, functions performed, assets used and risks assumed.

What Is Transfer Pricing Documentation?

Documentation is an important part of transfer pricing compliance.

Depending on the applicable requirements, certain UAE businesses may need to prepare a Master File and Local File.

The documentation helps demonstrate how related-party transactions were evaluated and how the business determined that its pricing was consistent with the arm’s length principle.

A Local File may contain information such as:

• Details of the UAE entity
• Organisational structure
• Related parties
• Description of transactions
• Intercompany agreements
• Functions performed
• Assets used
• Risks assumed
• Financial information
• Transfer pricing methodology
• Comparable analysis
• Supporting calculations

A Master File generally provides a broader overview of the multinational group's global operations, organisational structure and transfer pricing policies.

What Are the Transfer Pricing Documentation Thresholds?

Not every UAE business is automatically required to maintain a Master File and Local File.

The UAE rules establish specific conditions and thresholds for transfer pricing documentation.

A taxable person may generally be required to maintain the relevant documentation where its annual revenue reaches the applicable threshold or where it is part of a multinational enterprise group meeting the prescribed consolidated revenue threshold.

However, businesses should understand an important distinction:

Not being required to prepare a Master File or Local File does not necessarily mean that transfer pricing rules do not apply.

The arm’s length principle can still apply to relevant related-party transactions even when the documentation requirements are not triggered.

Transfer Pricing and UAE Corporate Tax

Transfer pricing is closely connected with UAE Corporate Tax.

When a related-party transaction does not reflect an arm’s length outcome, an adjustment may be required under the Corporate Tax rules.

For this reason, companies should not wait until the Corporate Tax return is due before reviewing their transfer pricing arrangements.

A better approach is to assess related-party transactions throughout the year and maintain appropriate supporting documentation.

This can be particularly important for businesses with significant cross-border transactions, intercompany financing or management-service arrangements.

How Can Businesses Prepare for Transfer Pricing Compliance?

Businesses operating in the UAE can take several practical steps to manage their transfer pricing obligations.

Step 1: Identify Related Parties

Review the ownership structure and identify all relevant related parties and connected persons.

Step 2: Identify Controlled Transactions

Prepare a list of transactions involving related parties, including services, goods, financing and intellectual property.

Step 3: Analyse Functions, Assets and Risks

Determine what each party actually does, which assets it uses and which commercial risks it assumes.

Step 4: Select an Appropriate Method

Choose the transfer pricing method that provides the most reliable basis for determining an arm’s length outcome.

Step 5: Perform Benchmarking

Where required, compare the transaction with appropriate independent transactions or companies.

Step 6: Maintain Supporting Records

Keep agreements, invoices, calculations, financial information and other evidence supporting the transfer pricing position.

Step 7: Review Before Corporate Tax Filing

Review related-party transactions and transfer pricing adjustments before submitting the UAE Corporate Tax return.

Why Choose Professional Transfer Pricing Support?

Transfer pricing can become complicated when businesses have multiple related entities, cross-border transactions, intellectual property or intercompany financing arrangements.

Professional support can help businesses identify transfer pricing risks, select suitable methodologies, assess documentation requirements and maintain a defensible tax position.

EBS can assist UAE businesses with Corporate Tax and transfer pricing matters, including reviewing related-party transactions and helping businesses understand their compliance responsibilities.

Conclusion

Transfer pricing UAE requirements are an important part of the country's Corporate Tax framework. Businesses conducting transactions with related parties or connected persons should ensure that their arrangements follow the arm’s length principle and are supported by appropriate documentation.

Understanding transfer pricing methods, documentation requirements and compliance responsibilities can help businesses manage tax risks and maintain accurate Corporate Tax records.

Whether your business operates locally or as part of an international group, reviewing related-party transactions regularly can provide greater confidence in your UAE Corporate Tax position.

Need help with transfer pricing in the UAE? Contact ebs for professional Corporate Tax and transfer pricing support.