Transfer Pricing in the UAE
Transfer pricing refers to the prices charged for transactions between related parties — for example, between a parent company and its subsidiaries, or between commonly-owned entities. The UAE's CT Law requires that related party transactions are priced on arm's length terms.
Who Does Transfer Pricing Apply To?
Transfer pricing rules apply to all UAE taxable persons that have transactions with related parties — regardless of size. However, documentation requirements scale with the size and complexity of transactions.
The Arm's Length Principle
Transactions between related parties must be priced as if they were between independent parties in comparable circumstances. If related party pricing is not at arm's length, the FTA can adjust the price to reflect what independent parties would have agreed.
Related Parties Under UAE CT Law
A person is a related party if they are:
- A natural person and their relatives
- Companies under common ownership or control (>50% ownership)
- Partners in an unincorporated partnership
- Companies where the same person holds ≥25% ownership or control
Documentation Requirements
UAE CT requires a Disclosure Form in the CT return listing all related party transactions. A formal Transfer Pricing Local File is required if:
- Annual revenues exceed AED 200 million, or
- Related party transactions exceed certain materiality thresholds (FTA guidance pending)
A Master File is required as part of the OECD BEPS framework obligations.
Common Related Party Transactions in UAE SMEs
- Management fees from a parent company
- Intercompany loans (interest must be at market rate)
- Shared service allocations
- License fees for use of IP or brand name
- Sales of goods between group entities
Penalties for Non-Compliance
Failure to maintain transfer pricing documentation can result in penalties of AED 10,000–50,000 for record-keeping failures, plus FTA adjustments to taxable income.
Kounted provides transfer pricing documentation support for SMEs and mid-market businesses with related party transactions.