TRANSFER PRICING REGULATIONS IN THE UAE

The United Arab Emirates (UAE) has rapidly evolved into a global business hub, attracting multinational enterprises (MNEs) across various industries. With this international expansion comes the need for robust tax regulations to align with global standards, particularly in the area of transfer pricing (TP). Transfer pricing refers to the pricing of goods, services, and intangibles between related entities within a multinational group.

In line with its commitment to the Organization for Economic Cooperation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) framework, the UAE introduced formal transfer pricing regulations as part of its Corporate Tax Law, which came into effect on 1 June 2023.

Key Aspects of Transfer Pricing in the UAE

Legal Framework

The UAE’s Federal Decree Law No. 47 of 2022 on Taxation of Corporations and Businesses outlines the TP requirements.

The law applies to businesses operating in the UAE that exceed certain revenue thresholds, including free zone entities, under specific conditions.

Arm’s Length Principle

The cornerstone of the UAE TP regime is the arm’s length principle, requiring transactions between related parties to be priced as if they were between unrelated parties under similar conditions.

Methods of Transfer Pricing

Taxpayers are required to apply OECD-aligned methods, including:

-Comparable Uncontrolled Price (CUP)

-Resale Price Method

-Cost Plus Method

-Transactional Net Margin Method (TNMM)

-Profit Split Method

Documentation Requirements

Businesses are required to maintain three types of documentation:

-Local File: detailing intra-group transactions in the UAE.

-Master File: providing an overview of the MNE group’s global business and pricing policies.

-Country-by-Country Reporting (CbCR): required for MNEs with consolidated revenues above AED 3.15 billion (approx. USD 850 million).

Related Parties and Connected Persons

The law defines “related parties” and “connected persons” broadly to include entities and individuals with control or ownership relationships. Special rules also apply to related party transactions involving directors, shareholders, or partners.

Penalties and Compliance

Failure to comply with TP documentation or reporting obligations may result in significant administrative penalties, as well as tax reassessments.

Why It Matters

For multinational companies operating in the UAE, understanding and adhering to transfer pricing rules is essential to avoid disputes with the Federal Tax Authority (FTA), mitigate compliance risks, and ensure transparent intercompany dealings.

With the introduction of formal TP regulations, the UAE has aligned itself with international tax standards and strengthened its position as a compliant and transparent business jurisdiction. Companies operating in the UAE must now prioritize transfer pricing compliance as part of their broader tax strategy.