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Before June 2023, transfer pricing was an abstract concern for most UAE businesses. Under the corporate tax law it is now a live compliance obligation for anyone who transacts with a related party — a group company, a sister entity, or themselves as owner. The FTA can adjust non-arm's-length transactions, disallow deductions, and penalise the shortfall. And the practical detail — who counts as related, what you must disclose, and when documentation is required — is where businesses get caught. Here is what you need to understand for 2026.
What transfer pricing is, and why it now matters in the UAE
Transfer pricing is the pricing of transactions between related parties — parent and subsidiary, sister companies, or an owner and their own business. The arm's length principle requires those transactions to be priced as if they occurred between independent parties in comparable circumstances.
The UAE Corporate Tax Law — Federal Decree-Law No. 47 of 2022, Chapter Ten — sets this out across Articles 34 to 36 and follows the OECD Transfer Pricing Guidelines as its interpretive framework. Any related-party transaction that is not at arm's length can be adjusted by the FTA to reflect the correct taxable income; understating profit through mispriced intercompany dealings carries real exposure. Crucially, this applies whether or not you are in a free zone.
The arm's length principle and the accepted methods
To test whether a transaction is at arm's length, the law uses the standard OECD methods: the comparable uncontrolled price method, resale price, cost plus, the transactional net margin method, and the transactional profit split method. Where none can be reliably applied, the law permits any other method a taxpayer can justify as meeting the arm's length standard.
Choosing and applying the right method — and supporting it with benchmarking against comparable third-party data — is the core of a defensible transfer-pricing position. It is also where thin, after-the-fact documentation falls apart under scrutiny.
Who is a "related party"?
The definition in Article 35 is broader than most owners expect. Related parties include: two or more natural persons related within the fourth degree of kinship or affiliation (including by adoption or guardianship); a natural person and a company in which that person, alone or with related parties, holds a 50% or greater interest or which they control; two companies where one holds 50% or more of, or controls, the other, or where a third party holds 50% of both; a person and their permanent establishment; partners in the same unincorporated partnership; and the parties to a trust or foundation.
"Control" is not only about shareholding — it includes the ability to direct 50% or more of voting rights or board composition, to receive 50% of profits, or to exercise significant influence over the business.
Connected persons — the owner-director trap
Separate from related parties, Article 36 governs "connected persons": the owners, directors and officers of a business, and their related parties. Payments or benefits to a connected person are deductible only to the extent they match the market value of what is actually provided and are incurred wholly and exclusively for the business.
This is where owner-managed companies get caught. An owner-director paying themselves an above-market salary, or charging their own company above-market rent on a property they own, is making a connected-person payment that must pass the arm's length test — or the excess is disallowed. It is one of the most common exposures in UAE corporate tax, and one of the easiest to overlook.
What you must disclose — the related-party form
Every corporate-tax return includes a disclosure of related-party and connected-person transactions, and the thresholds that trigger it come from the FTA's Corporate Tax return guidance, not from the documentation decision.
You must complete the related-party schedule where the aggregate value of your related-party transactions exceeds AED 40 million; once that is crossed, each transaction category above AED 4 million must be disclosed. Separately, payments to connected persons must be disclosed where they exceed AED 500,000 in aggregate, with per-person disclosure above the same figure. These are disclosures, not documentation — but they are how the FTA sees your intercompany activity and decides where to look closer.
Master file and local file — the documentation thresholds
Formal documentation — a master file and a local file — is required under Ministerial Decision No. 97 of 2023 where either of two thresholds is met: the business is part of a multinational group with total consolidated group revenue of AED 3.15 billion or more; or the business's own revenue in the tax period is AED 200 million or more.
The master file describes the group — its structure, its business and value chain, its financing, its intangibles. The local file documents the specific entity's material intercompany transactions: a functional analysis of who does what and bears which risks, an economic analysis benchmarking the pricing, and the method applied. Below these thresholds you need not prepare the files, but you must still price at arm's length and be able to support it.
Country-by-Country Reporting
The largest groups face an additional obligation. Under Cabinet Decision No. 44 of 2020, a multinational group whose ultimate parent entity is tax-resident in the UAE, and whose consolidated group revenue is AED 3.15 billion or more, must file a Country-by-Country Report — filed with the Ministry of Finance, not the FTA — together with a notification.
The report shows, for each jurisdiction the group operates in, its revenue, profit before tax, tax paid, employees, and assets. Its purpose is to let tax authorities spot where profit sits out of line with real activity. The UAE exchanges this information automatically with its treaty partners.
Corresponding adjustments and advance agreements
Two mechanisms are worth knowing. If the FTA adjusts a transaction upward on one side, a corresponding downward adjustment may be available on the other to avoid double taxation — but downward adjustments that reduce income generally require the FTA's prior approval, not a self-assessment.
The FTA has also opened an Advance Pricing Agreement route, beginning with unilateral APAs for domestic controlled transactions, letting a taxpayer agree a pricing approach with the authority in advance. For groups with large or complex intercompany flows, an APA can convert transfer-pricing uncertainty into certainty — at the cost of an application process and fees.
The mistakes that get businesses adjusted
The recurring failures are predictable: pricing intercompany transactions by intuition rather than analysis; documenting only after the FTA asks — which suggests the pricing was not arm's length at the time; owner-directors taking salaries or charging rent above market; management fees and intra-group loans with no supporting rationale; and assuming free-zone status somehow exempts you from the rules. It does not.
Transfer pricing is one of the few corporate-tax areas where the FTA can rewrite your numbers after the fact. The businesses that stay safe are the ones whose intercompany pricing was defensible before the return was filed, not reverse-engineered afterward.
What to do now
Start by mapping every related-party and connected-person relationship and the transactions between them. For each material transaction, decide the most appropriate method and gather the benchmarking to support it. Review your existing intercompany arrangements — service agreements, management fees, loans, rent, owner remuneration — against the arm's length standard, and fix anything that does not stand up before it appears on a return.
Document the analysis contemporaneously, and prepare the master and local files if you are over the thresholds. If your business has related-party transactions and you are not confident they would survive FTA scrutiny, a transfer-pricing review is the place to start. Book a consultation and we will assess your position and documentation.
Frequently asked questions
What is transfer pricing and why does it matter in the UAE?
Transfer pricing is the pricing of transactions between related parties, which the arm's length principle requires to be priced as if between independent parties. It sits in the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022, Articles 34–36) and follows the OECD Transfer Pricing Guidelines. The FTA can adjust non-arm's-length transactions and disallow the excess — and it applies to free zone companies too.
Who is a related party under UAE corporate tax?
Related parties (Article 35) include natural persons related within the fourth degree of kinship or affiliation; a person and a company they own 50% or more of or control; two companies under 50%+ common ownership or control; a person and their permanent establishment; partners in the same partnership; and the parties to a trust or foundation. "Control" also covers significant influence, not just shareholding.
What is a connected person in UAE corporate tax?
A connected person (Article 36) is an owner, director, or officer of the business, and their related parties. Payments or benefits to them are deductible only to the extent they match market value and are wholly and exclusively for the business — which catches owner-directors taking above-market salaries or charging their own company above-market rent.
What transfer-pricing disclosures must I make in the UAE?
A related-party schedule is required in your corporate-tax return where aggregate related-party transactions exceed AED 40 million, with each category above AED 4 million disclosed. Separately, connected-person payments must be disclosed where they exceed AED 500,000. These disclosure thresholds come from the FTA's Corporate Tax return guidance.
When is a master file and local file required in the UAE?
Under Ministerial Decision No. 97 of 2023, you must maintain both a master file and a local file if either your multinational group's consolidated revenue is AED 3.15 billion or more, or your own revenue in the tax period is AED 200 million or more. Below these thresholds you still must price at arm's length and be able to support it.
Who must file Country-by-Country Reporting in the UAE?
Under Cabinet Decision No. 44 of 2020, a multinational group whose ultimate parent entity is UAE tax-resident and whose consolidated revenue is AED 3.15 billion or more must file a Country-by-Country Report with the Ministry of Finance, plus a notification, showing revenue, profit, tax, employees, and assets per jurisdiction.
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