Every UAE business dealing with related parties, a parent company, a subsidiary, a sister company, needs to understand transfer pricing under corporate tax. The rules exist to make sure profit isn’t shifted between related entities to reduce tax, and the FTA expects transactions between connected parties to be priced as if they were between strangers. Here is what that actually means in practice.
The core principle: arm’s length
Transactions between related parties must be priced on an arm’s length basis, meaning the price and terms should reflect what unrelated parties would agree in comparable circumstances. If your UAE company sells to its parent company at a discount that has nothing to do with real commercial terms, that is exactly what transfer pricing rules exist to catch.
Who counts as a related party
Related parties include entities connected by ownership or control, typically a shareholding threshold, along with close relatives of individual owners in certain structures. It also extends to connected persons more broadly, such as a business and its owner, or two businesses under common control. Getting this mapped correctly for your group structure is the starting point, you cannot apply the rules correctly if you have not identified who they apply to.
Documentation requirements
Depending on your size and the scale of related party transactions, you may need to maintain:
- A Local File, detailing your related party transactions and how pricing was determined
- A Master File, for larger groups, covering the wider multinational group’s structure and transfer pricing policies
- Disclosure in your tax return of related party transactions above the relevant thresholds, even where full documentation is not required
Not every business needs a full Local File and Master File, thresholds apply. But disclosure obligations reach further than most businesses expect, so assuming you are too small to worry about this is a common and costly mistake.
Common transactions that trigger transfer pricing questions
- Management fees charged between related entities
- Intercompany loans and the interest rate applied
- Goods or services sold between related companies
- Shared costs allocated across a group
- Royalties for use of intellectual property within a group
Any of these, priced without proper regard to what unrelated parties would agree, creates transfer pricing exposure.
Why this matters even if you are not a large multinational
Transfer pricing is often assumed to be a large-company problem. It is not. A small UAE business with a related entity overseas, a UK parent, an owner’s other company, a family group structure, still has related party transactions that need to be priced correctly and, where required, disclosed. The rules do not exempt small groups from the arm’s length principle itself, only from some of the more detailed documentation requirements.
What to do now
- Map every related party your business transacts with
- List the nature and value of transactions with each
- Confirm pricing reflects genuine arm’s length terms, not convenience
- Establish whether Local File or Master File thresholds apply to you
- Make sure related party disclosures are included in your corporate tax return
Transfer pricing is one of the more technical areas of UAE corporate tax, and getting the related party analysis wrong carries real exposure. Alif is an FTA-registered tax agency with a Big 4 experienced team. Speak to our corporate tax consultants in Dubai about your group structure. Book a free consultation.