The introduction of Corporate Tax in the UAE has significantly altered the regulatory and tax compliance environment for businesses operating in the region. In particular, Transfer Pricing (TP) regulations have added a new layer of complexity for entities engaging in related-party transactions. With the UAE aligning its tax framework with global standards, businesses are now expected to meet stringent documentation and disclosure requirements to avoid penalties and ensure full compliance.
This blog provides a comprehensive overview of the key rules governing Transfer Pricing under UAE Corporate Tax law, the importance of proper documentation, and how businesses can prepare for compliance. We also highlight how PEAK Business Consultancy Services can support your tax strategy with tailored advisory solutions.
Corporate Tax Framework in the UAE
The UAE introduced Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, with effect from financial years beginning on or after 1 June 2023. The standard Corporate Tax rate is 9% on taxable income above AED 375,000. The law applies to all UAE businesses, with certain exemptions for free zone entities (subject to meeting qualifying income criteria), government-controlled entities, and small business relief under prescribed thresholds.
One of the cornerstone features of the UAE Corporate Tax regime is the mandatory application of Transfer Pricing rules to transactions between related parties and connected persons.
What is Transfer Pricing?
Transfer Pricing refers to the rules and methods for pricing transactions between entities under common control or ownership, known as “related parties.” These transactions must be priced as if they were conducted between independent, unrelated entities—a principle known as the “arm’s length principle.”
Transfer Pricing is designed to prevent profit shifting and ensure that companies pay a fair share of taxes in the jurisdictions where they operate and generate value.
Who Are Considered Related Parties?
Under UAE tax law, related parties include:
- Entities that are under common ownership or control (direct or indirect)
- Individuals who own a significant interest (25% or more) in multiple entities
- Family members conducting transactions with a business
- Partners, directors, and their connected persons
Transactions between these parties must be properly documented and benchmarked to demonstrate compliance with Transfer Pricing rules.
Key Transfer Pricing Rules in the UAE
The UAE Transfer Pricing regime incorporates OECD principles and includes the following critical components:
- Arm’s Length Principle: All related-party transactions must be at market value.
- TP Disclosure Form: Required to be submitted along with the Corporate Tax return, disclosing details of related-party transactions.
- Master File and Local File: Required for businesses that meet specific thresholds to document their global and local TP arrangements.
- Accepted TP Methods: Comparable Uncontrolled Price (CUP), Resale Price Method, Cost Plus, Transactional Net Margin Method (TNMM), and Profit Split Method.
Thresholds for Transfer Pricing Documentation
Not all businesses are immediately subject to Master File and Local File requirements. The documentation requirements apply if:
- The entity is part of a multinational group with consolidated global revenues of AED 3.15 billion or more
- The entity engages in cross-border transactions or significant domestic related-party transactions
Even if documentation thresholds are not met, the arm’s length principle and the requirement to complete the TP Disclosure Form still apply.
What Should the Master File Include?
The Master File provides a global view of the multinational group and must include:
- Organizational structure
- Nature of global business operations
- Group’s intangibles and intellectual property
- Details of financial arrangements
- Overall allocation of income and economic activities
What Should the Local File Contain?
The Local File focuses on the UAE entity’s specific related-party transactions and must document:
- Nature and scope of intercompany transactions
- Functional analysis (functions performed, risks assumed, and assets employed)
- Benchmarking studies and selection of TP method
- Reconciliation with financial statements
The Role of PEAK Business Consultancy Services
Preparing Transfer Pricing documentation that is compliant, accurate, and defensible requires specialized expertise. That’s where PEAK Business Consultancy Services comes in.
As one of the UAE’s leading tax and advisory firms, PEAK BCS helps businesses:
- Identify related-party transactions and assess TP risk
- Prepare and file Transfer Pricing Disclosure Forms
- Develop and document Master and Local Files
- Conduct benchmarking studies and economic analyses
- Align TP strategy with VAT and corporate tax requirements
Explore our expert solutions at https://www.peakbcs.com/.
Penalties for Non-Compliance
The UAE’s Federal Tax Authority (FTA) has outlined administrative penalties for non-compliance with TP obligations, including:
- Failure to maintain documentation
- Inaccurate or incomplete TP Disclosure Form
- Mispricing of transactions leading to underpayment of tax
These penalties can be substantial, and businesses are encouraged to take proactive measures to ensure compliance.
How to Prepare Your Business for TP Compliance
To stay ahead of the curve, UAE businesses should:
- Map out all related-party transactions and categorize them
- Perform a risk assessment and materiality analysis
- Document intercompany agreements and contracts
- Engage tax consultants to develop a compliance roadmap
- Train internal teams on TP policies and documentation practices
Conclusion
Transfer Pricing under the UAE Corporate Tax regime is more than a regulatory obligation—it is a strategic tool for ensuring tax certainty and operational transparency. With the introduction of robust TP rules and documentation requirements, businesses must act swiftly to meet compliance expectations and avoid penalties.
PEAK Business Consultancy Services stands ready to support your organization in navigating this new regulatory environment. Our team of tax experts provides end-to-end advisory on all aspects of Transfer Pricing, VAT, and Corporate Tax compliance in the UAE.
To schedule a consultation or learn more about our services, visit https://www.peakbcs.com/.
