Decoding Transfer Pricing in the UAE: What Businesses Need to Know

With the full implementation of Corporate Tax, understanding Transfer Pricing UAE is now a top priority for every business owner. This blog will simplify the complex world of intercompany transactions, explaining why your "sister company" deals must follow market prices and how you can stay compliant with the Federal Tax Authority (FTA) to avoid high penalties.

Why Transfer Pricing is No Longer Just for Global Giants

In the past, many Dubai-based businesses could move money or services between their various companies without much oversight. However, under the new Corporate Tax regime, the FTA is closely watching these "Related Party" transactions. The goal is simple: to ensure that companies are not shifting profits from a taxable Mainland entity to a 0% tax Free Zone entity just to save money on taxes.

If your business sells goods, provides management services, or gives loans to another company you own, you are now part of the Transfer Pricing UAE framework. Every transaction must reflect the "Arm's Length Principle," which is a fancy way of saying you must charge your sister company the same price you would charge a total stranger in the open market. Failing to prove this can lead to the FTA adjusting your taxable income and issuing significant fines.

The Rules of the Game: Arm's Length and Documentation

To stay on the right side of the law, businesses must move from informal "family deals" to documented, market-based transactions. Here is the main context of how transfer pricing works in the Emirates today.

1. The Arm’s Length Principle (ALP)

The ALP is the heart of Transfer Pricing UAE. It requires that the terms and conditions of a transaction between related parties be the same as those that would have been agreed upon by independent parties. For example, if you rent an office to your subsidiary, the rent must match the current market rates in that specific area of Dubai.

2. Identifying Related Parties and Connected Persons

You must comply with these rules if you are dealing with:

• Related Parties: This includes companies that have more than 50% common ownership or control.

• Connected Persons: These are individuals like owners, directors, officers, or even their family members (up to the fourth degree of kinship) who receive payments from the business.

3. Mandatory Documentation Thresholds

Not every small business needs a 100-page report, but you must know where you stand:

• Disclosure Form: If your total related party transactions exceed AED 40 million, you must submit a disclosure form along with your tax return.

• Local File & Master File: You are required to maintain these detailed reports if your annual revenue is AED 200 million or more, or if you are part of a massive Multinational Enterprise (MNE) group with a consolidated revenue of AED 3.15 billion.

• Free Zone Benefit: If you are a "Qualifying Free Zone Person" aiming for the 0% tax rate, complying with transfer pricing rules is a mandatory requirement to keep that benefit.

Common Questions on Transfer Pricing UAE

1. Does Transfer Pricing UAE apply to domestic transactions?

Yes. Unlike many other countries, the UAE rules apply to transactions between two UAE-based companies (e.g., a Mainland company and a Free Zone company), not just international ones.

2. What happens if I don't have a formal transfer pricing study?

If audited, the FTA may ignore your internal pricing and re-calculate your tax based on what they believe is the "market price." This usually results in higher tax bills and penalties.

3. Do I need to submit my Master File and Local File every year?

No. You must have them ready "contemporaneously" (at the time of the transaction), but you only submit them to the FTA within 30 days if they specifically ask for them.

4. Is a loan from an owner to their company covered under these rules?

Yes. Interest-free loans or loans with very high interest rates between owners and their businesses are a major focus for the FTA. The interest rate must be at a market level.

5. Are there penalties for non-compliance?

Yes. As of April 2026, the UAE has a unified penalty framework. Failing to keep proper records can result in fines starting at AED 10,000, plus potential interest on any unpaid tax resulting from price adjustments.

Leading Finance Accounting Firm

Navigating the "market price" for every internal service can be a nightmare for busy entrepreneurs. FIN-HIVE Consulting LLC is recognized as a premier Finance Accounting Firm in Dubai, specializing in bridging the gap between business operations and tax compliance.

Our experts help you identify your "Related Parties," perform benchmarking studies to find the correct market rates, and prepare the necessary Local and Master Files. By partnering with FIN-HIVE, you ensure that your intercompany transactions are audit-proof and that your business remains fully compliant with the evolving UAE tax landscape.

Master Your Compliance Strategy Today

Stop guessing your internal prices and start building a solid, legal foundation for your group of companies.

Contact FIN-HIVE Consulting LLC today to perform a Transfer Pricing risk assessment and ensure your business stays protected from FTA scrutiny and penalties.