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.
UAE Transfer Pricing: Key Thresholds at a Glance
| Requirement | Threshold | Obligation |
|---|---|---|
| Arm's length pricing | All related-party transactions | Required for every CT taxpayer with related-party transactions |
| Transfer Pricing Disclosure Form (TPDF) | AED 40M total with natural persons or non-CT entities, OR AED 4M per single transaction category | Filed with Corporate Tax return |
| Local File | Group revenue AED 200M+ AND related-party transactions AED 15M+ | Prepared and retained; submitted to FTA on request |
| Master File | Same as Local File thresholds (group-level) | Prepared and retained; submitted to FTA on request |
| Country-by-Country Report | Consolidated group revenue AED 3.15B+ | Filed with FTA annually |
| Connected Persons Schedule | Transactions with owners or directors AED 500K+ | Filed with Corporate Tax return |
| Unilateral APA eligibility | Related-party transactions AED 100M+ | Application fee AED 30,000 (non-refundable) |
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
Principle 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:
| Condition | Threshold |
|---|---|
| Part of a Multinational Enterprise group | Consolidated group revenue ≥ AED 3,150,000,000 |
| Standalone entity (not part of an MNE group) | Revenue in the relevant tax period ≥ AED 200,000,000 |
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.
The Connected Persons Schedule
A separate filing obligation applies when a Taxable Person transacts with its connected persons — owners, directors, and individuals who hold a significant stake in the business — and the total value of those transactions in the tax period exceeds AED 500,000.
Where that threshold is met, the Connected Persons Schedule must be completed as part of the Corporate Tax return. It captures the nature of each transaction, the counterparty, the value, and a confirmation that pricing was at arm's length. Connected persons are defined broadly under Article 36 of the Corporate Tax Law to include individuals who own or control the business, their close family members, and other entities under their control.
Several common arrangements in owner-managed UAE businesses fall within scope: salary or director fees paid to shareholders, loans between the owner and the business, rent on premises owned by the owner, and management fees to a related holding entity. Where the AED 500,000 threshold is met, arm's length substantiation is required for each.
Sources: Federal Decree-Law No. 47 of 2022, Article 36; 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.
Penalties for Transfer Pricing Non-Compliance
Cabinet Decision No. 129 of 2025, effective 14 April 2026, replaced the prior penalty schedule under Cabinet Decision No. 75 of 2023. The revised framework introduced materially higher exposure for transfer pricing failures.
The penalty structure: failure to maintain a required Local File carries AED 100,000 for the first instance and AED 250,000 for repeat failures. The same amounts apply to failure to maintain a Master File. Failure to submit a Country-by-Country Report on time is AED 1,000,000. Failure to submit the Transfer Pricing Disclosure Form is AED 10,000 per failure. Providing incorrect transfer pricing information to the FTA can attract AED 5,000 to AED 50,000 depending on the severity of the error.
These penalties are in addition to, not instead of, any tax reassessment. Where the FTA determines that a related-party transaction was not priced at arm's length and issues a revised assessment, the resulting understatement of taxable income attracts further penalties under the general Corporate Tax penalty framework. The two exposures accumulate.
The practical implication is that the cost of non-compliance now substantially exceeds the cost of maintaining contemporaneous documentation for most UAE businesses with meaningful related-party activity. This is no longer a risk management question — it is a compliance baseline.
Sources: Cabinet Decision No. 129 of 2025 (effective 14 April 2026); Federal Decree-Law No. 47 of 2022.
Advance Pricing Agreements
The FTA launched the Unilateral Advance Pricing Agreement (UAPA) Programme in January 2026. An APA is a formal agreement between a taxpayer and the FTA that confirms the transfer pricing methodology for a defined set of related-party transactions over a specified period, typically three to five years. Once in place, the agreed methodology cannot be challenged by the FTA for the covered transactions during that period.
Eligibility requires total related-party transactions exceeding AED 100 million in the relevant tax period. The application fee is AED 30,000, non-refundable. The programme covers prospective transactions only and provides no protection against prior-period positions.
For businesses with high-value or structurally complex intercompany arrangements — intellectual property licensing, management fees, intercompany financing, cost-sharing agreements — an APA removes the annual documentation burden for covered transactions and eliminates adjustment risk for the agreement period. At AED 30,000 per application, the fee is a fraction of the exposure from a contested FTA reassessment on a material transaction.
Bilateral APAs, which would involve agreement between the UAE FTA and a foreign tax authority, are not yet available as at October 2026. The FTA has indicated that bilateral arrangements may be introduced in a subsequent phase as the UAE's network of Double Tax Agreements and Competent Authority relationships continues to develop.
Sources: FTA Circular on the Unilateral APA Programme (January 2026); Federal Decree-Law No. 47 of 2022, Article 34.
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.
Frequently Asked Questions
What is the arm's length principle in UAE transfer pricing?
The arm's length principle requires that transactions between related parties are priced as they would be between independent parties dealing on comparable terms in similar circumstances. Under Article 34 of the Corporate Tax Law, this is the foundational rule for all UAE transfer pricing. Where the FTA determines that a related-party transaction was not at arm's length, it may adjust the taxable income of the UAE entity to reflect a price that independent parties would have agreed.
Who qualifies as a related party under UAE Corporate Tax?
Related parties are defined under Article 35 of the Corporate Tax Law to include entities in which one holds a 50% or greater ownership or control interest, along with the individuals and entities that exercise control over both the Taxable Person and the counterparty. Connected persons under Article 36 extend this to owners, directors, their close family members, and other entities they control. The combined scope captures most holding structures, group companies, family-owned businesses, and owner-managed SMEs with intercompany arrangements.
When is the Transfer Pricing Disclosure Form required in the UAE?
The TPDF is required where total related-party transactions with natural persons or entities not subject to UAE CT exceed AED 40 million in the tax period, or where any single transaction category — goods, services, royalties, or financing — individually exceeds AED 4 million. It is filed as part of the Corporate Tax return and summarises the nature, value, and arm's length method for each category. Failure to file carries a penalty of AED 10,000 per instance under Cabinet Decision No. 129 of 2025.
What documentation is required for a UAE Local File?
A Local File is required when consolidated group revenue exceeds AED 200 million and related-party transactions in the tax period exceed AED 15 million. It must cover the UAE entity's material related-party transactions in detail: the business and industry context, a description of the transactions, the transfer pricing method selected, the economic analysis supporting that method, and the comparable data used. The Local File does not need to be submitted unless the FTA requests it, but it must be contemporaneous — prepared before the filing deadline, not reconstructed later.
What are the penalties for failing to maintain transfer pricing documentation?
Under Cabinet Decision No. 129 of 2025, effective 14 April 2026: failure to maintain a required Local File or Master File carries AED 100,000 for a first instance and AED 250,000 for repeat failures. Failure to file a Country-by-Country Report on time is AED 1,000,000. Failure to submit the TPDF is AED 10,000. These penalties apply regardless of whether the FTA also raises a transfer pricing adjustment on the substance of the transactions.
Can a UAE business apply for an Advance Pricing Agreement?
Yes. The FTA's Unilateral APA Programme, launched January 2026, is open to taxpayers whose total related-party transactions exceed AED 100 million. An APA confirms the accepted transfer pricing methodology for covered transactions over three to five years, removing the risk of an FTA adjustment on those transactions for the duration of the agreement. The application fee is AED 30,000. Bilateral APAs are not yet available as at October 2026.
Do UAE free zone entities have transfer pricing obligations?
Yes. Free zone entities that are Taxable Persons under the Corporate Tax Law are subject to the same transfer pricing rules as mainland entities. A Qualifying Free Zone Person must ensure that all transactions with related parties — particularly those outside the free zone — are priced at arm's length. Transactions that are not at arm's length can affect QFZP eligibility. The TPDF, Local File, Master File, and CbCR obligations apply in full where the relevant thresholds are met.
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.