“We don’t need transfer pricing; we only need to file a basic corporate tax return.” We hear this from UAE business owners often, and it is one of the costliest assumptions in UAE corporate tax.
Transfer pricing documentation in the UAE is not optional for every business with related-party dealings, and a filed return does not prove your pricing is defensible. This guide explains what the law requires, where businesses go wrong, and what to do before the Federal Tax Authority (FTA) asks.
What UAE Law Actually Requires
Transfer pricing sits in Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. It works in three layers, and a basic return only touches one of them.
Layer 1: The arm’s length principle (applies to everyone)
Related-party and connected-person transactions must be priced as if between independent parties. This applies regardless of whether the Master File, Local File or disclosure thresholds are met. A business below every threshold must still keep reasonable support that its intercompany pricing reflects market conditions.
Layer 2: The Transfer Pricing Disclosure Form (filed with your return)
The form goes in with your corporate tax return, which is due within nine months of your financial year-end. You must complete it when:
- total related-party transactions exceed AED 40 million
- any single category (goods, services, financing, IP) exceeds AED 4 million
- payments to connected persons, such as owners, directors and their relatives, exceed AED 500,000
The connected-person limit catches many owner-managed SMEs that never think of themselves as “transfer pricing” cases.
Layer 3: Master File and Local File (kept ready for the FTA)
Under Ministerial Decision No. 97 of 2023, you must maintain both files if your revenue is AED 200 million or more, or you belong to a multinational group with consolidated revenue of AED 3.15 billion or more.
You do not file them with the return. They must be prepared contemporaneously and produced within 30 days of an FTA request. A defensible Local File needs a functional analysis, method selection, intercompany agreements and a current benchmarking study. That cannot realistically be built from scratch in 30 days.
What a Basic Corporate Tax Return Does Not Prove
A filed return states your numbers. It does not show that your related-party prices were arm’s length. The FTA is now actively requesting transfer pricing documentation during risk-based audits.
Without support, the FTA can:
- adjust your taxable income to its own view of an arm’s length price
- assess additional 9% corporate tax on the difference
- apply administrative penalties and interest on top
The Real Cost: Penalties, Adjustments and Lost Reliefs
Fixed penalties are only the start. Failure to maintain required records, including transfer pricing documentation, attracts fixed penalties under Cabinet Decision No. 75 of 2023, reported as AED 10,000 for a first violation and AED 20,000 for repeat violations. Confirm current figures against the latest FTA guidance before relying on them.
The larger exposure is usually the adjustment itself. Here is an illustrative example:
- A UAE company pays its overseas parent an AED 4 million management fee with no benchmarking or agreement support.
- The FTA concludes an arm’s length fee is AED 2.5 million and disallows AED 1.5 million.
- Extra corporate tax at 9% is AED 135,000 (roughly USD 36,800), before penalties and interest.
Free zone businesses face a further risk. A Qualifying Free Zone Person must also price its transactions at arm’s length and maintain appropriate transfer pricing documentation. Poor compliance can put the 0% rate on qualifying income at risk.
Do You Need a Transfer Pricing Benchmarking Study?
A benchmarking study is the evidence that supports your arm’s length claim. The legal position depends on your size:
- Above the Master File and Local File thresholds, a benchmarking study is a core part of mandatory documentation.
- Below the thresholds, no formal study is mandated by the file rules, but you still need to show your pricing is arm’s length.
- For material or complex transactions, a study is the strongest defence, so many groups prepare simplified Local File-style documentation anyway.
A reliable study typically covers:
- functional, asset and risk (FAR) analysis
- selection of the tested party and the most appropriate method (CUP, TNMM, RPM, CPM or profit split)
- comparable company search with documented screening
- an arm’s length range and a clear conclusion
- signed intercompany agreements that match what actually happens
Frequently Asked Questions
Does transfer pricing apply to small UAE businesses?
Yes. Full Master File and Local File rules apply only above the thresholds, but the arm’s length principle applies to all related-party and connected-person transactions. The disclosure form may also apply.
Is a benchmarking study mandatory in the UAE?
It is effectively required as part of Local File documentation above the thresholds. Below them, it is not mandated by the file rules, but it is the most reliable way to prove arm’s length pricing.
Are free zone companies exempt from transfer pricing?
No. Free zone companies, including QFZPs, must follow the arm’s length principle and keep appropriate documentation.
When must I submit the Master File and Local File?
Within 30 days of an FTA request. They are not filed with the corporate tax return.
How Tax Gian Can Help
Tax Gian provides end-to-end transfer pricing services in the UAE, from gap assessment to audit defence. Our team can:
- review your related-party and connected-person transactions
- prepare benchmarking studies, Master Files and Local Files
- complete the Transfer Pricing Disclosure Form accurately with your return
- draft or refresh intercompany agreements
- support you if the FTA requests documentation or opens an audit
Do not wait for the 30-day clock to start. Contact Tax Gian today for a transfer pricing health check and find out where you stand before the FTA asks.
