TRANSFER PRICING REQUIREMENTS UNDER UAE CORPORATE TAX LAW

Transfer Pricing Requirements Under UAE Corporate Tax Law

Transfer Pricing Requirements Under UAE Corporate Tax Law

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The United Arab Emirates (UAE) is a prominent global business hub known for its tax-friendly environment. Over the years, the UAE has emerged as a major center for international trade, finance, and investment. In response to global tax trends and to align with the Organisation for Economic Co-operation and Development (OECD) guidelines, the UAE has recently implemented a new corporate tax regime. One of the most significant components of this new tax law is the requirement for businesses to comply with transfer pricing regulations.

Transfer pricing refers to the pricing of goods, services, and intellectual property exchanged between related entities within a multinational enterprise. These transactions need to be conducted at arm's length, meaning that the prices charged should be consistent with what would have been agreed upon between independent parties in a free market. This principle ensures that profits are appropriately allocated and taxed in the jurisdictions where economic activity occurs, thus preventing tax avoidance strategies such as profit shifting.

The transfer pricing requirements under the UAE’s corporate tax law, its implications for businesses, and the role of corporate tax compliance services and tax advisory services in UAE.

Understanding the UAE’s Corporate Tax Regime


The UAE introduced its first federal corporate tax law, known as the UAE Corporate Tax Law, in 2023. This law significantly impacts businesses, both local and international, operating in the UAE. The law is designed to comply with international tax standards, ensure fair taxation, and curb tax avoidance schemes such as profit shifting. One of the most important provisions of this law is the introduction of mandatory transfer pricing rules, which are applicable to companies conducting intercompany transactions with related parties.

Under the UAE Corporate Tax Law, businesses must follow the arm's length principle when pricing intercompany transactions. This means that all intra-group transactions, whether they involve goods, services, or intellectual property, must reflect the market prices that independent parties would agree to in a similar transaction. The law applies to all companies, including those in free zones, although free zone companies may benefit from certain exemptions depending on the nature of their activities.

To help businesses comply with these requirements, corporate tax compliance services are becoming increasingly critical. These services offer businesses the necessary guidance on how to structure their intercompany transactions, maintain the appropriate documentation, and ensure adherence to UAE tax law. For companies operating across multiple jurisdictions, these services can also provide insights into international tax considerations, ensuring that businesses remain compliant with both UAE law and global tax standards.

Transfer Pricing Documentation and Compliance


The UAE’s corporate tax law mandates that businesses prepare and maintain detailed transfer pricing documentation. This documentation serves as evidence of compliance with the arm's length principle and must be made available to the Federal Tax Authority (FTA) upon request. The documentation should include:

  1. Master File: This file contains general information about the multinational group, including organizational structure, financial data, and a description of its business activities. It should also outline the global transfer pricing policies and the method used for determining the arm's length prices for intercompany transactions.

  2. Local File: This file contains specific information about the local business entity, such as details of its intercompany transactions, financial statements, and the transfer pricing method applied to those transactions.

  3. Country-by-Country Reporting: Larger multinational enterprises with consolidated revenue exceeding a specified threshold will need to prepare a country-by-country report. This report provides a detailed breakdown of profits, taxes paid, and economic activity for each country in which the enterprise operates.


The importance of preparing and maintaining comprehensive transfer pricing documentation cannot be overstated. Failing to do so may result in penalties and increased scrutiny from the tax authorities. To navigate these complexities, companies often seek corporate tax compliance services to ensure they are meeting all the necessary documentation and reporting requirements under UAE law.

Key Transfer Pricing Methods Under UAE Law


The UAE Corporate Tax Law allows businesses to use several methods to determine arm's length prices for intercompany transactions. The choice of method depends on the nature of the transaction and the availability of reliable data. The most commonly used transfer pricing methods under the UAE Corporate Tax Law include:

  1. Comparable Uncontrolled Price (CUP) Method: This method compares the price charged in a controlled transaction (i.e., between related parties) with the price charged in a comparable transaction between independent parties. It is generally considered the most direct and reliable method.

  2. Cost Plus Method: This method involves adding an appropriate markup to the cost incurred by the supplying party in an intercompany transaction. This markup should reflect the profit that would be earned in a similar transaction between unrelated parties.

  3. Resale Price Method: This method is used when a product is purchased from a related party and then resold to an independent third party. The resale price method determines the arm’s length price by subtracting an appropriate gross margin from the resale price.

  4. Profit Split Method: This method is used when transactions involve unique and intangible assets, such as intellectual property. It allocates the combined profits from a transaction between related parties based on their respective contributions to the value creation.

  5. Transactional Net Margin Method (TNMM): This method compares the net profit margin of a controlled transaction with that of similar transactions conducted between unrelated parties. This is often used when the other methods are difficult to apply due to a lack of comparable data.


Choosing the appropriate transfer pricing method requires expertise in both the specific transaction and the broader market conditions. This is where tax advisory services in UAE can provide invaluable assistance, helping businesses select the most appropriate pricing methodology based on their unique circumstances.

The Role of Tax Advisory Services in UAE


Tax advisory services in UAE play a critical role in helping businesses navigate the complexities of transfer pricing requirements. These services provide guidance on the optimal structuring of intercompany transactions, ensuring that businesses comply with local tax laws while maintaining operational flexibility.

Additionally, tax advisory services in UAE can assist with:

  1. Transfer Pricing Planning: This involves structuring intercompany transactions in a way that minimizes tax risk while adhering to the arm's length principle. Advisors help businesses evaluate their transfer pricing policies and propose adjustments to align with tax law.

  2. Documentation Support: Tax advisors can assist in preparing transfer pricing documentation, ensuring that it meets the requirements of the UAE Corporate Tax Law. They also help businesses with the preparation of master files, local files, and country-by-country reporting.

  3. Risk Assessment and Dispute Resolution: Transfer pricing disputes are a common area of concern for multinational enterprises. Tax advisory services help businesses assess their transfer pricing risks, develop strategies to minimize these risks, and offer support in resolving any disputes that may arise with the tax authorities.

  4. Global Transfer Pricing Strategy: For businesses operating in multiple jurisdictions, tax advisors offer strategic guidance on aligning local transfer pricing policies with global tax planning objectives. This ensures that the business’s transfer pricing practices are consistent across borders and compliant with both local and international tax rules.


Penalties for Non-Compliance


Failure to comply with transfer pricing regulations under the UAE Corporate Tax Law can result in significant penalties. The Federal Tax Authority (FTA) has the authority to impose fines for non-compliance, which can include:

  1. Late Filing Penalties: Companies that fail to submit transfer pricing documentation within the specified deadlines may be subject to fines.

  2. Incorrect or Incomplete Documentation: If the FTA determines that a business's transfer pricing documentation is incorrect or incomplete, it may impose penalties.

  3. Adjustments to Taxable Profits: In cases where the FTA determines that intercompany transactions were not conducted at arm's length, they may adjust the company’s taxable profits and impose additional tax liabilities.


To avoid these penalties, businesses should engage corporate tax compliance services to ensure that their transfer pricing practices are fully compliant with UAE tax laws.

Transfer pricing requirements under the UAE Corporate Tax Law have introduced a new layer of complexity for businesses operating in the UAE. The law mandates that businesses conduct intercompany transactions at arm's length and maintain thorough documentation to demonstrate compliance. Failure to comply with these requirements can result in substantial penalties and increased scrutiny from tax authorities.

To navigate the intricacies of transfer pricing and ensure full compliance with the law, businesses should seek professional assistance from corporate tax compliance services and tax advisory services in UAE. These services provide expert guidance on structuring intercompany transactions, preparing the necessary documentation, and ensuring adherence to the UAE's transfer pricing regulations.

As the UAE continues to align its tax system with international standards, understanding and complying with transfer pricing requirements is essential for businesses seeking to maintain a competitive edge in the region.

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