Transfer Pricing

All taxable persons with related party or connected person transactions must file a Transfer Pricing Disclosure Form along with their corporate tax return. The form requires disclosure of the nature, value, and jurisdiction of each transaction, along with whether the taxpayer maintains a Local File and Master File.

According to Ministerial Decision No. 97 of 2023, a Local File and Master File are mandatory if a taxpayer’s revenue exceeds AED 200 million, or if the taxpayer belongs to a multinational enterprise (MNE) group with consolidated revenue exceeding AED 3.15 billion.

The FTA requires all related party and connected person transactions to be priced as if they occurred between independent entities in an open market. Acceptable OECD-based methods include the Comparable Uncontrolled Price (CUP), Resale Price Method, Cost Plus Method, Transactional Net Margin Method (TNMM), and Profit Split Method.

Yes, the rules apply to both domestic and cross-border related party transactions. This ensures that profits are not shifted artificially between Free Zone and Mainland entities or between group companies in the UAE to exploit preferential tax rates.

Yes. All financial transactions, including shareholder loans, guarantee fees, royalties, and management service charges, must be justified under the arm’s length principle. Companies must prepare evidence such as loan agreements, service contracts, and comparables to prove compliance.

Failure to submit accurate disclosure forms or maintain transfer pricing documentation can result in:

• Fixed penalties for late or missing filings
• Proportional penalties based on undeclared tax

Potential disallowance of related party deductions
The FTA may also reassess taxable income if pricing is deemed non-arm’s length

Free Zone entities must ensure that transactions with related mainland companies or foreign group entities are priced at arm’s length. If transactions are not compliant, the Free Zone entity may lose its Qualifying Free Zone Person (QFZP) status and be taxed at 9% corporate tax.

Currently, the UAE does not have a formal APA program. However, businesses can proactively maintain robust transfer pricing documentation and comparables to defend their pricing during FTA audits. In future, APAs may be introduced as the UAE aligns more closely with OECD standards.

Red flags include:

• Sudden changes in profit margins of group entities
• Persistent losses despite group profitability
• High-value management service fees without evidence of benefit
• Intragroup financing with no interest or below-market rates
• Profit shifting between Free Zone and Mainland companies

Transfer pricing documentation must be retained for at least 7 years. The FTA expects detailed functional analysis, benchmarking studies, intercompany agreements, financial data, and justification for the chosen pricing method to be included in the Local File and Master File.