UAE Transfer Pricing: The Arm’s Length Requirement, Documentation Obligations, and FTA Compliance

Transfer pricing is the set of rules that governs how transactions
between related parties are priced and documented for tax purposes.
Under UAE Corporate Tax law, every transaction between connected persons
must be conducted as if the parties were dealing at arm’s length — that
is, at the price and on the terms that unrelated parties in comparable
circumstances would have agreed.

The arm’s length requirement is not limited to multinational groups.
It applies to transactions between any two related parties: a UAE parent
and its UAE subsidiary, a shareholder and the company they own, a
business and a family member who provides services to it. What changes
for larger groups is the level of documentation the FTA requires to
support the arm’s length position.

This guide covers who the rules apply to, what “related party” and
“arm’s length” mean under UAE law, the three-tier documentation
framework, and the common areas where FTA scrutiny concentrates.

The Legal Framework

The arm’s length principle for UAE Corporate Tax is established in
Article 34 of Federal Decree-Law No. 47 of 2022. It applies to all
transactions and arrangements between related parties and connected
persons.

The documentation and disclosure requirements are set out in
Ministerial Decision No. 97 of 2023 on Transfer Pricing, issued under
the CT Law. This decision establishes the documentation thresholds,
specifies what a Master File and Local File must contain, and sets out
the conditions for the Transfer Pricing Disclosure Form.

Country-by-Country Reporting is governed separately by Cabinet
Decision No. 44 of 2020, which predates the CT Law and continues to
apply to UAE-headquartered multinational groups.

Source: Federal Decree-Law No. 47 of 2022, Article
34; Ministerial Decision No. 97 of 2023; Cabinet Decision No. 44 of
2020.

Who Is a Related Party

Under the CT Law, related parties include:

• Individuals connected by family (to the fourth degree of
  kinship)
• A natural person and a juridical person where the individual holds,
  directly or indirectly, 50% or more of the shares, voting rights, or
  profit entitlement in the juridical person
• Two or more juridical persons where one holds 50% or more of the
  other, or where both are 50% or more commonly held by the same person or
  group
• A branch and its parent entity
• Partners in the same partnership

The 50% ownership threshold is the core test for corporate related
party relationships. Where a person does not hold 50% but exercises
significant influence over another entity’s financial or operational
decisions, that relationship may also fall within the related party
definition. Businesses with complex group structures, minority
cross-holdings, or nominee arrangements should assess related party
status carefully rather than relying solely on the 50% rule.

Source: Federal Decree-Law No. 47 of 2022, Articles
35–36.

The Arm’s Length
@rinciple in Practice

The arm’s length principle requires that the terms and conditions of
a transaction between related parties do not differ from what would have
been agreed between independent parties in comparable circumstances.

In practice, this means that when a UAE company pays management fees
to its parent, charges rent to an affiliate, lends money to a
subsidiary, or licenses intellectual property to a related entity, the
amounts charged must reflect market rates — not rates set for group
convenience, tax minimisation, or cash management purposes.

The CT Law recognises five transfer pricing methods that correspond
to internationally accepted OECD guidance:

• Comparable Uncontrolled Price (CUP): the most
  direct method; compares the controlled transaction price against prices
  in comparable uncontrolled transactions
• Resale Price Method: starts from the resale price
  and works back to an arm’s length supply price using the gross margin of
  comparable transactions
• Cost Plus Method: adds an appropriate mark-up to
  the cost of the controlled transaction
• Transactional Net Margin Method (TNMM): compares
  the net profit margin relative to an appropriate base (costs, sales,
  assets) against comparable uncontrolled transactions
• Profit Split Method: allocates the combined profit
  of related parties based on each party’s relative contribution

The most appropriate method depends on the nature of the transaction,
the availability of comparable data, and the facts and circumstances.
For management fees and intercompany services, TNMM and the cost plus
method are most commonly applied. For loan transactions, the CUP method
applied to market interest rates is standard.

Source: Federal Decree-Law No. 47 of 2022, Article
34; FTA Transfer Pricing Guide (October 2023).

The Three-Tier
Documentation Framework

UAE transfer pricing documentation requirements operate in three
tiers depending on the size and nature of the taxable person.

Tier 1: Basic
Documentation — All Taxable Persons

Every taxable person with related party transactions must be able to
demonstrate that those transactions are priced at arm’s length. There is
no minimum transaction size below which the arm’s length obligation does
not apply. The FTA can request documentation of any related party
transaction as part of an audit or review.

What this means in practice: for businesses below the formal
documentation thresholds, it is not sufficient to simply assert that
transactions are at arm’s length. The pricing basis must be supportable
— ideally with reference to comparable market data, cost build-ups, or
industry benchmarks — and that support should be documented
contemporaneously, not assembled after an FTA query arrives.

Tier 2:
Master File and Local File — Larger Entities

Businesses meeting either of the following conditions must prepare a
Master File and a Local File:

The Master File provides an overview of the MNE
group — the business structure, the group’s global value chain, the
principal intangibles held and their location, intercompany financing
arrangements, and the group’s existing advance pricing agreements and
tax rulings.

The Local File contains transaction-level detail for
the UAE entity: a description of each controlled transaction, the
amounts involved, the parties to the transaction, the transfer pricing
method applied, and the comparable data used to support the arm’s length
outcome.

Both files must be maintained contemporaneously — that is, they must
be prepared in connection with the tax period to which they relate, not
reconstructed after the fact.

Source: Ministerial Decision No. 97 of 2023,
Articles 3–5.

Tier
3: Transfer Pricing Disclosure Form — Related Party Transaction
Volume

Businesses whose total related party transactions in a tax period
exceed AED 40,000,000 must file a Transfer Pricing
Disclosure Form alongside the Corporate Tax return.

The form discloses the aggregate value of related party transactions
by category, the transfer pricing methods applied, and whether Master
File and Local File documentation has been prepared. It is submitted
through EmaraTax as part of the CT return filing.

The AED 40M threshold is assessed on the total value of all related
party transactions in the period — not on any single transaction or
category of transaction. A business with ten related party transactions
each below AED 4M still meets the threshold if their aggregate exceeds
AED 40M.

Source: Ministerial Decision No. 97 of 2023; FTA
Transfer Pricing Guide (October 2023).

Country-by-Country Reporting

Country-by-Country Reporting (CbCR) applies to UAE-headquartered
Multinational Enterprise groups with total consolidated group revenue of
AED 3,150,000,000 or more in the preceding financial
year.

The CbCR report requires a jurisdiction-by-jurisdiction breakdown of
the group’s global activities, including revenue, profit before tax,
income tax paid and accrued, employee headcount, and tangible assets.
This information is filed with the UAE Ministry of Finance and shared
with tax authorities in other jurisdictions under the OECD Base Erosion
and Profit Shifting (BEPS) framework.

For UAE groups at or near the threshold, the AED 3,150,000,000 figure
is assessed on consolidated group revenue — not the UAE entity alone. A
UAE parent whose subsidiaries collectively generate revenue above the
threshold is a reporting entity even if the UAE operations are below the
threshold on a standalone basis.

Source: Cabinet Decision No. 44 of 2020; Ministerial
Decision No. 97 of 2023.

Where FTA
Transfer Pricing Scrutiny Concentrates

Management Fees and Group
Charges

Charges from a parent or holding company for management services,
shared services, or head office costs are among the most commonly
challenged related party transactions. The FTA expects these to reflect
a genuine service, charged at cost plus an arm’s length mark-up. A
management fee that is a round number, set as a percentage of revenue
without cost justification, or that significantly exceeds what an
independent service provider would charge, will attract challenge.

Interest
on Shareholder Loans and Intercompany Financing

Loan transactions between related parties must carry arm’s length
interest. A shareholder loan at 0% interest, or at a rate set below what
the borrowing entity could obtain from an unrelated lender, is not at
arm’s length. Under the CT Law’s interest deduction limitation rules,
interest on related party debt is also subject to the 30% EBITDA cap
(for businesses above the AED 12,000,000 net interest threshold), which
creates a compounding exposure where the rate is already above
market.

Royalties and
Intellectual Property Charges

Where a related party holds the group’s intellectual property and
charges the UAE entity a royalty for its use, the royalty rate must
reflect arm’s length pricing for the specific IP involved. The FTA
assesses whether the royalty is proportionate to the actual value
contributed by the IP to the UAE entity’s operations.

Related Party Rent

Premises rented from a related party — a shareholder, a connected
entity, or a family member — must be charged at market rates. Rent above
or below market rates is a non-arm’s length condition. The FTA will
compare rents against comparable market transactions in the same
location.

Transactions with
Low-Tax Jurisdictions

Where the related party is in a jurisdiction with a significantly
lower tax rate than the UAE, the arm’s length analysis is subject to
additional FTA attention. This is particularly relevant for UAE entities
that pay fees, royalties, or interest to group entities in no-tax or
low-tax jurisdictions.

Documentation Timing
and Record Retention

Transfer pricing documentation must be maintained for a minimum of
seven years from the end of the tax period to which it
relates, consistent with the general CT record retention
requirement.

The critical practical point: transfer pricing documentation is not a
year-end exercise. Comparable data for intercompany services and loan
transactions must be identified during the year, pricing must be set in
advance of transactions (not retrospectively), and the documentation
that supports the arm’s length position must be in place at the time the
transaction occurs — or, at the latest, by the time the CT return is
filed.

A business that attempts to reconstruct its transfer pricing
documentation after receiving an FTA audit notification will find both
the documentation harder to prepare credibly and the voluntary
disclosure cost framework less available to it.

Common Misunderstandings

“We are below the Master File threshold so we don’t need to
document anything.” The documentation thresholds in Ministerial
Decision No. 97 determine the level of formal documentation required,
not whether the arm’s length requirement applies. Every related party
transaction must be at arm’s length regardless of size. The difference
is that businesses below the formal threshold do not need a Master File
— they still need to be able to support their pricing if the FTA
asks.

“The transactions are between UAE entities, so transfer
pricing doesn’t apply.” The arm’s length requirement applies to
all related party transactions, including purely domestic ones. A UAE
parent charging a below-market management fee to a UAE subsidiary is
still a non-arm’s length arrangement that the FTA can challenge and that
creates a corporate tax exposure.

“The shareholder loans have always been
interest-free.” Interest-free loans to or from shareholders are
specifically within the CT Law’s transfer pricing scope. From the first
CT period, these loans should carry an arm’s length interest rate or the
arrangement should be documented with a basis for why an interest-free
structure reflects arm’s length terms. The FTA’s starting position is
that an independent lender would not lend interest-free.

“The related party charges are small, so the FTA will not
look at them.” There is no minimum transaction size below which
the arm’s length obligation disappears. The FTA’s audit approach for
transfer pricing focuses on patterns and materiality — but a business
that has no documentation for any related party transaction, regardless
of size, is exposed if those transactions are challenged.

Prepared by BPOAS. This article provides general guidance and
does not constitute specific tax advice. Businesses should seek advice
from a qualified UAE tax professional on their individual
circumstances.