Insights Corporate Tax
Transfer Pricing Rules UAE: Who Must Comply and How
UAE transfer pricing rules: who must comply, the arm's-length principle, related party transactions, and the AED 200m and AED 3.15bn thresholds.
Key takeaways
- Transfer pricing UAE rules live inside the Corporate Tax Law and rest on the arm's-length principle
- Every taxable person must price transactions with Related Parties and Connected Persons at arm's length
- Related-party transactions above the FTA disclosure thresholds must be reported on the Corporate Tax return
- Master file + local file apply to MNE groups with group revenue ≥ AED 3.15bn OR a taxable person with revenue ≥ AED 200m
- Connected Persons covers owners, directors and their relatives — payments to them must also be arm's length
- Even small businesses have no exemption from arm's-length pricing on related-party deals
Ask most UAE business owners whether transfer pricing applies to them and the answer is usually a confident “no — that’s a big-multinational thing.” It is one of the most expensive assumptions in the whole Corporate Tax regime. Transfer pricing in the UAE is not a separate, optional layer bolted on for large groups. It sits inside the Corporate Tax Law itself, and its central rule — the arm’s-length principle — applies, in principle, to every taxable person that transacts with a Related Party or a Connected Person.
What changes with the size of the business is only the volume of paperwork you have to keep, not whether the rules bite. This guide sets out who actually has to comply, what the arm’s-length principle means in practice, who counts as a Related Party or Connected Person, and where the AED 200m and AED 3.15bn documentation thresholds draw the line.
Where transfer pricing actually lives in UAE tax
Transfer pricing is not a standalone piece of legislation. It is woven into the UAE Corporate Tax framework, which means it is part of the same set of obligations that govern registration, taxable income and the annual return. That placement matters, because it removes the mental escape hatch a lot of owners reach for. If you are a taxable person under Corporate Tax and you transact with connected businesses or people, the transfer pricing rules are already part of your compliance picture — you do not opt into them by crossing a size threshold.
The core requirement is deceptively simple to state: transactions between Related Parties and Connected Persons must follow the arm’s-length principle. Related party transactions, in other words, have to be priced the way strangers would price them. That single sentence carries the whole regime. It says that the price at which connected entities deal with each other should mirror the price that unconnected parties would have agreed in the open market. The moment two businesses under common ownership sell to each other, lend to each other, share staff, or pay each other fees, the price of that dealing is in scope.
AED 200m
Taxable-person revenue at or above which a master file and local file become required — the parallel threshold to AED 3.15bn of consolidated MNE group revenue
The reason this rule exists is the same everywhere in the world it appears: without it, groups could quietly move profit from a higher-tax entity to a lower-tax one simply by adjusting the prices they charge each other internally. The arm’s-length principle closes that door by insisting internal prices be tested against what the market would bear. The UAE has aligned its approach with the international consensus on this, which is why the language of master files, local files and benchmarking will feel familiar to anyone who has met these rules in another jurisdiction. In practice the UAE transfer pricing guidelines track the OECD Transfer Pricing Guidelines closely, so a group that already runs a policy for another country is usually adapting an existing framework rather than inventing one.
Who must comply with the UAE transfer pricing rules
Strip away the detail and the question most owners actually want answered is a plain one: who must comply with the UAE transfer pricing rules? The short version is almost anyone who runs a taxable business and deals with people or companies close to them. There is a quick, three-part test.
First, are you a taxable person under Corporate Tax? Mainland companies, most free-zone companies and many individuals running a business all are. Second, do you transact with a Related Party or a Connected Person — a group company, a business under common ownership, or an owner, director or their relative? Third, does money change hands between you and them — a sale, a loan, a fee, rent, a salary? If the answer to all three is yes, the arm’s-length principle already applies to you, whatever your turnover.
What the test does not turn on is size. A one-owner company that pays its founder a management fee is caught just as squarely as a listed group. Revenue only decides the depth of paperwork, which the thresholds section below sets out — not whether the rules reach you at all. Our related-party disclosure guide walks through the reporting side of the same obligation.
The arm’s-length principle, in practice
It is one thing to define the arm’s-length principle and another to apply it on a Tuesday afternoon when the group is about to invoice a sister company. In practice, applying it means asking a single disciplined question for every related-party dealing: what would an independent buyer, with no relationship to us, have paid for this exact thing?
Take a few everyday examples. A holding company charges its trading subsidiary a management fee for head-office services — the fee should reflect what an outside provider would charge for equivalent support, not a round number chosen to move profit. One group entity lends another working capital — the interest rate should sit where an unrelated lender would have set it for a borrower of that risk, which is why interest-free intercompany loans attract attention rather than avoiding it. A UAE company buys inventory from a related overseas supplier — the transfer price should track what a third-party distributor would have paid. In each case the test is the same, and in each case the answer needs some evidence behind it rather than an assertion.
That evidence is what benchmarking provides. To defend a price, you compare it against what independent parties charge in comparable transactions — using external data, internal comparables, or an accepted pricing method. For a large group with a formal local file, this is a structured exercise with documented comparables. For a smaller business below the thresholds, it can be far lighter: a short, contemporaneous note explaining why the price is reasonable and what it was based on. The obligation to price at arm’s length is the same; only the depth of the supporting file scales with size.
The transfer pricing methods the UAE accepts
Once you accept that a related-party price has to be defended, the natural next question is how. The UAE follows the internationally recognised set of transfer pricing methods — the same five the OECD sets out — and the Corporate Tax framework expects you to choose the one that fits the transaction, not the one that flatters the numbers.
The five are worth knowing by name. The comparable uncontrolled price (CUP) method tests your price against what unrelated parties charge for the same thing. The resale price method works back from the price a related buyer resells at, stripping out a normal margin. The cost plus method adds a market mark-up to the supplier’s costs. The transactional net margin method (TNMM) compares net profit margins against independent companies doing similar work. The profit split method divides combined profit between the parties by their real contribution.
No single method wins by default. The rule is to apply the most appropriate method for the facts, and where none of the five fits, another method may be justified provided it still lands on an arm’s-length result. For groups large enough to trip the documentation thresholds, the method chosen and the reasoning behind it belong in the master file and local file rather than in someone’s memory.
Related Parties and Connected Persons — the two circles that matter
The whole regime hinges on who you are dealing with. Two categories define the scope, and while they overlap, they are worth separating because the second one catches far more small businesses than owners expect.
Related Parties
Related Parties are the entities and individuals linked to your business by ownership, control or family relationship. The clearest cases are group companies — a parent and its subsidiaries, or two subsidiaries under a common parent. It also reaches businesses under common control even without a direct shareholding chain, and individuals connected by a defined degree of kinship. If your company transacts with another company that shares owners, or with a relative’s business, you are almost certainly inside the Related Party definition, and those transactions need to be at arm’s length.
Connected Persons
Connected Persons is the category that trips up owner-managed SMEs. It covers the people who own or control the business and those linked to them — owners, directors, and their relatives — along with entities in which they are partners. The practical consequence is direct and often overlooked: payments the business makes to its owners and directors are Connected Person transactions. A management fee paid to a shareholder, a salary paid to an owner-director, rent paid to the founder for a property they personally own — each of these must itself be set at arm’s length to be properly deductible for corporate tax. A business with a single owner and no group structure at all can still have Connected Person transactions on its books.
Who must keep documentation — the AED 200m and AED 3.15bn thresholds
Here is where the size of the business finally changes something concrete. Formal transfer pricing documentation — the master file and the local file — is required where either of two thresholds is met.
The first is a group test. If the business is part of a multinational enterprise (MNE) group and the total consolidated group revenue is AED 3.15bn or more, the master file and local file apply. This threshold looks at the whole group, not just the UAE entity, so a UAE subsidiary of a large global group can be caught even if its own local revenue is modest.
The second is an entity test. If the taxable person’s own revenue in the relevant period is AED 200m or more, the documentation requirement applies to that entity regardless of any group. A large standalone UAE business, or a UAE company whose group sits below the global threshold but whose own turnover is substantial, falls into scope on this test.
Meet either threshold and you maintain the master file and local file. Sit below both and you generally do not have to keep that formal documentation set — but, and this is the part that is easy to misread, you still have to apply the arm’s-length principle to your related-party dealings and disclose them on your Corporate Tax return. The threshold governs the paperwork, not the pricing rule — and where the related-party dealing is the transfer of a whole business or shareholding rather than a routine service fee, supporting the arm’s-length price usually means commissioning a business valuation in Dubai rather than reaching for a comparables table.
The thresholds decide who files a master file, not who follows the arm’s-length principle. Every taxable person prices related-party transactions at arm’s length; only the largest groups also carry the formal documentation burden. Confusing the two is how small businesses end up with an unpriced management fee on a return they have to sign.
Every threshold in one table
Four separate obligations sit under the transfer pricing heading, and each switches on at a different point. Reading them as one rule is what produces the two classic errors: a small business assuming nothing applies to it, and a mid-sized one assuming the disclosure thresholds are the documentation thresholds.
| Obligation | Trigger | Where it comes from |
|---|---|---|
| Arm’s-length pricing on every Related Party and Connected Person transaction | No threshold — it applies to every taxable person | Federal Decree-Law 47 of 2022, Articles 34 and 36 |
| Related Party transaction schedule on the Corporate Tax return | Aggregate value of all transactions with all Related Parties above AED 40,000,000 in the tax period | FTA Corporate Tax Guide, Tax Returns (CTGTXR1, Nov 2024), §16.1 |
| Itemisation inside that schedule | Once the AED 40,000,000 gate is passed, each transaction category above AED 4,000,000 | CTGTXR1 §16.1 |
| Dividends declared between Related Parties | Excluded from disclosure, and excluded when testing the AED 40,000,000 and AED 4,000,000 thresholds | CTGTXR1 §16.1 |
| Connected Persons schedule | Aggregate payments or benefits above AED 500,000 per Connected Person, taken with its Related Parties | CTGTXR1 §16.2 |
| Master file and local file | Constituent company of an MNE group with total consolidated group revenue of AED 3,150,000,000 or more | Ministerial Decision 97 of 2023, Article 2(1)(a) |
| Master file and local file | The taxable person’s own revenue in the period of AED 200,000,000 or more | Ministerial Decision 97 of 2023, Article 2(1)(b) |
| Producing documentation to the FTA | Within 30 days of the FTA’s request | Federal Decree-Law 47 of 2022, Article 55 |
Thresholds checked against the Ministry of Finance text of Ministerial Decision 97 of 2023 and the FTA’s own Corporate Tax Returns guide, 5 August 2026. The disclosure figures live in the returns guide rather than in the FTA’s Transfer Pricing Guide, which states only that a materiality threshold applies — so if a source quotes AED 40 million from the TP guide, it has not read either document.
One point of ordering is worth spelling out. The AED 40,000,000 figure is a gate, not a reporting line. Cross it and you then itemise every category above AED 4,000,000; stay below it and the schedule does not apply at all, even where an individual category would have exceeded AED 4,000,000 on its own.
What goes in the local file, and what stays out
For the businesses that do cross the documentation thresholds, the local file is not a record of every related-party dealing. Ministerial Decision 97 of 2023 defines an inclusion list and an exclusion list, and getting this wrong in either direction is expensive — over-inclusion buries the file in domestic transactions nobody needed, under-inclusion leaves out the counterparties the FTA is actually looking for.
| Counterparty | Local file treatment |
|---|---|
| A Non-Resident Person | Include |
| An Exempt Person | Include |
| A Resident Person that has made an election under Article 21 of the Corporate Tax Law and meets its conditions | Include |
| A Resident Person whose income is subject to a different Corporate Tax rate from yours | Include |
| Any other Resident Person | Exclude |
| A natural person, where the parties act as if independent of each other | Exclude |
| A juridical person that is a Related Party solely by being a partner in the same Unincorporated Partnership, where the parties act as if independent | Exclude |
| A Permanent Establishment of a Non-Resident Person taxed at the same Corporate Tax rate as you | Exclude |
The phrase “acting as if they were independent” is not a judgement call — the decision defines it. Both limbs must hold: the transaction is undertaken in the ordinary course of business, and the parties are not exclusively or almost exclusively transacting with each other. And where one party’s activities are subject to the detailed instruction or comprehensive control of the other, they are not treated as independent at all, whatever the two limbs would otherwise suggest.
Read the exclusions carefully, because the second and third are narrower than they look at a glance. The juridical-person exclusion applies only where the relationship arises solely from being partners in the same unincorporated partnership — it is not a general licence to leave out any corporate Related Party you believe deals with you at arm’s length.
Do free zone companies have to follow the transfer pricing rules?
Free-zone owners often assume the 0% regime keeps transfer pricing at arm’s length from them too. It works the other way. A Qualifying Free Zone Person — the status that unlocks the 0% rate on qualifying income — has to comply with the arm’s-length principle and keep transfer pricing documentation as a standing condition of holding that status. Fall short on it and the 0% treatment itself is put at risk.
The nuance that catches people is scope. For a mainland company, formal master file and local file duties switch on at the AED 200m or AED 3.15bn thresholds. For a free-zone company relying on qualifying income, transfer pricing documentation is part of the price of admission to the regime, so it should not lean on those thresholds to opt out. A free-zone entity transacting with its mainland sister company, its overseas parent, or its own owners still has to price each dealing at arm’s length and be able to show the working behind it.
Because the precise free-zone conditions sit in Cabinet and Ministerial Decisions that are refined over time, check the current position before you rely on it rather than working from an old summary. Our free-zone corporate tax and QFZP guide sets out the wider set of conditions that sit alongside the transfer pricing duty.
Disclosure on the Corporate Tax return — where it kicks in
Disclosure sits on a separate track from the master file and local file. The Corporate Tax return includes a transfer pricing disclosure form for related-party and Connected Person transactions, but it is not completed by every business that has such dealings — it applies once the transactions cross the FTA’s value thresholds.
On current FTA guidance the related-party schedule is triggered where aggregate related-party transactions exceed AED 40 million in the period (with individual categories above AED 4 million then itemised), and the Connected Person schedule where payments or benefits to a connected person exceed AED 500,000. Below those levels there is no disclosure form to complete — but the arm’s-length principle still governs the pricing itself, with no small-business exemption. Because the FTA can revise these thresholds and forms, confirm the current figures before you rely on them.
That disclosure track is worth dwelling on, because for businesses above the thresholds it changes the risk profile of getting the pricing wrong. Where a transaction has to be reported, it is no longer something buried in the ledger that no one will ever look at. So for a business above the disclosure thresholds, a management fee paid to an owner that was never benchmarked, an intercompany loan at an off-market rate, or a sale to a sister company at a convenient internal price is visible on the face of the filing.
The safe position, whether or not you cross the thresholds, is to price these dealings at arm’s length before the transaction happens, keep a short record of how the price was arrived at, and disclose accurately where required. Pricing correctly and disclosing correctly are two halves of the same duty.
This is also why transfer pricing cannot be separated from the wider corporate tax compliance cycle. The related-party disclosure sits on the same return as taxable income and the tax computation. If the intercompany prices feeding into that income are not defensible, the whole return inherits the weakness. Treating transfer pricing as a year-end afterthought, bolted on when the return is being prepared, is how businesses end up disclosing transactions they have not properly priced.
What small businesses get wrong
The pattern is consistent enough to name. A small or mid-sized UAE company reads “transfer pricing” and mentally files it under “for multinationals,” then makes one or more of a handful of predictable mistakes.
The first is assuming the arm’s-length principle does not apply below the documentation thresholds. It does. The thresholds govern the master file and local file, not whether related-party transactions must be at arm’s length. Every taxable person carries the pricing obligation.
The second is missing Connected Person transactions entirely. Owners think of transfer pricing as company-to-company trading and overlook that paying themselves, a director, or a family member is a Connected Person transaction in its own right. The owner’s salary, the management fee, the rent on the owner’s property — all need arm’s-length support.
The third is leaving pricing until the return is prepared. By then the transactions have already happened at whatever price was used, and there is no contemporaneous rationale to point to. The fix is to set intercompany and owner-related prices deliberately, at the time of the transaction, with a short note on how each was benchmarked.
The fourth is treating the disclosure as a formality. For a business above the disclosure thresholds, related-party transactions are reported on the return, so a price that was never defensible is now on record. Getting the pricing right protects the disclosure; a clean disclosure of a bad price protects nothing.
None of these mistakes require a complex group structure to make. A single-owner company with a management fee and a property lease to its founder can commit two of them before lunch.
Building a proportionate transfer pricing routine
For a business below the documentation thresholds, the goal is not a full local file — it is a proportionate routine that keeps the arm’s-length obligation satisfied without over-engineering it. That routine has a few moving parts.
Start by mapping the related-party and Connected Person transactions the business actually has. For most SMEs this is a short list: intercompany sales or services, any intercompany loans, and payments to owners and directors including salary, fees and rent. Knowing the list is half the battle, because the surprises are usually the transactions nobody thought of as “related.”
Next, set a defensible price for each and write down why. This does not need to be a benchmarking study with dozens of comparables. For an owner’s salary it might be a note on comparable market pay for the role; for rent, a reference to local market rates for the property; for a management fee, a reasoned link to the services actually provided and what an outside provider would charge. The discipline is contemporaneous — priced and noted when the transaction happens, not reconstructed at year-end.
Then keep the record with the rest of the corporate tax working papers, so that when the related-party disclosure goes onto the return, the numbers behind it already have support. Finally, revisit the list each year, because ownership, group structure and revenue all move — and a business that was comfortably below AED 200m one year can approach it the next, at which point the full master file and local file obligations come into view and the routine needs to scale up accordingly.
Handled this way, transfer pricing stops being a source of year-end anxiety and becomes a quiet part of how the business prices its internal dealings. The businesses that struggle are the ones that skipped the mapping step and discovered their exposure on the return. The ones that stay calm did the ten-minute version of this routine before they ever needed it.
Where this leaves your business
The headline is worth repeating because so many owners get it backwards: transfer pricing in the UAE applies to everyone, and the thresholds only decide who keeps the formal paperwork and files the disclosure form. Every taxable person must price transactions with Related Parties and Connected Persons at arm’s length. The related-party disclosure form applies once the transactions cross the FTA’s value thresholds, and the master file and local file are a further obligation for MNE groups above AED 3.15bn of consolidated revenue or entities above AED 200m of their own revenue — heavier layers on top of a pricing rule that already binds the smallest business.
If your company transacts with group entities, or simply pays its owners and directors, you have related-party dealings that need to be at arm’s length. Getting there is not about buying an expensive study — it is about mapping those transactions, pricing them deliberately, keeping a short rationale, and disclosing them cleanly. For a deeper walk through the mechanics of the regime, read our transfer pricing UAE explainer; to see how the pricing feeds the wider return, pair it with the way we approach corporate tax services.
Velmont Crest is a DED-licensed UAE accounting firm providing advisory and preparation support across the Corporate Tax cycle — transfer pricing support, related-party mapping, arm’s-length pricing rationale, and return preparation — for SMEs and larger businesses across mainland and free zones. Read more on our insights hub or get in touch via our contact page.
Disclaimer: Velmont Crest is a DED-licensed accounting firm providing advisory, preparation and compliance support services. We are not a law firm, the Federal Tax Authority, or an FTA-registered tax agent representing clients before the FTA, and nothing here is legal or tax advice for your specific circumstances. UAE transfer pricing and Corporate Tax rules, thresholds and documentation requirements change and depend on your facts — verify the current position against the Corporate Tax Law and Federal Tax Authority guidance, and consult a licensed professional before acting.
References
Frequently asked questions
- Does transfer pricing in the UAE only apply to multinationals?
- No. This is the single biggest misconception. The arm's-length principle inside the UAE Corporate Tax Law applies to every taxable person, not just large multinational groups. Any transaction with a Related Party or a Connected Person has to be priced as if the two sides were independent. What changes with size is the paperwork: only businesses above the revenue thresholds have to prepare a formal master file and local file, and the related-party disclosure form on the return only applies once the transactions cross separate value thresholds. A small company still has to price its related-party dealings at arm's length — it may simply fall below the thresholds for the disclosure form and the full documentation set.
- What is the arm's-length principle in plain terms?
- It means a transaction between two connected businesses should be priced the same way it would be if the two sides had no relationship at all — as if they were strangers negotiating in an open market. If one company in a group sells goods or services to another, lends it money, or charges it a management fee, the price should reflect what an unrelated buyer would have paid. The point is to stop groups from shifting profit around by charging artificial internal prices. In practice you support the price by comparing it to what independent parties charge for a similar deal, which is where benchmarking comes in.
- Who counts as a Related Party or a Connected Person?
- Broadly, Related Parties are entities and individuals linked by ownership, control or kinship — group companies, businesses under common control, and family members within a defined degree of relationship. Connected Persons are the people who own or control the business and those linked to them, such as owners, directors and their relatives, plus entities they are partners in. The practical trigger most small businesses miss is that payments to owners and directors — salaries, management fees, rent for a property they own — are Connected Person transactions and must themselves be at arm's length to be deductible for corporate tax.
- When do I need a master file and a local file?
- Formal transfer pricing documentation — the master file and the local file — is required where the business is part of a multinational enterprise group with total consolidated group revenue of AED 3.15bn or more, or where the taxable person's own revenue in the relevant period is AED 200m or more. Below those thresholds you generally do not have to maintain that documentation set, but you still have to apply the arm's-length principle and disclose related-party transactions on your return. Even where documentation is not mandatory, keeping a simple, contemporaneous rationale for your intercompany prices is sensible.
- Which transfer pricing methods does the UAE accept?
- The same five the OECD sets out. The comparable uncontrolled price method tests your price against what unrelated parties charge for the same thing. The resale price method works back from the price a related buyer resells at, stripping out a normal margin. Cost plus adds a market mark-up to the supplier's costs. The transactional net margin method compares net profit margins against independent companies doing similar work. Profit split divides the combined profit by each party's real contribution. There is no default winner — you apply the most appropriate method for the facts, and if none of the five fits, another method can be used provided it still produces an arm's-length result.
- What are the transfer pricing disclosure thresholds on the UAE Corporate Tax return?
- Two schedules, two tests, and the figures sit in the FTA's Corporate Tax Guide on Tax Returns rather than its Transfer Pricing Guide. The Related Party schedule applies where aggregate transactions with all Related Parties exceed AED 40 million in the period; through that gate, each category above AED 4 million is itemised. Dividends between Related Parties are excluded from both the disclosure and the threshold test. The Connected Persons schedule is separate, applying where payments or benefits to a Connected Person and its Related Parties exceed AED 500,000. Below a threshold there is no schedule — but the arm's-length obligation is unaffected.
- Which related-party transactions go in the local file, and which stay out?
- Ministerial Decision 97 of 2023 sets an inclusion list and an exclusion list. Include a Non-Resident Person, an Exempt Person, a Resident Person that has made an Article 21 election and meets its conditions, and a Resident Person taxed at a different Corporate Tax rate from yours. Exclude other Resident Persons; a natural person acting as if independent; a juridical person related solely by partnership in the same Unincorporated Partnership, again acting as if independent; and a Permanent Establishment of a Non-Resident Person taxed at your rate. "Acting as if independent" is defined rather than left to judgement — the transaction must be in the ordinary course of business and the parties must not be transacting exclusively or almost exclusively with each other.
- How long does the FTA give me to produce transfer pricing documentation?
- Thirty days from the request, under Article 55 of Federal Decree-Law 47 of 2022. That is the number that decides whether documentation is a contemporaneous discipline or a crisis. A master file and local file cannot be researched, benchmarked, drafted and reviewed inside a month from a standing start, so a business above the AED 200 million or AED 3.15 billion thresholds that has not prepared them in advance is effectively unable to comply on time. Businesses below those thresholds have no master file or local file duty, but the same logic applies in miniature to the short pricing rationale behind an owner's management fee or an intercompany loan: written when the transaction happens, it takes minutes; reconstructed under a deadline, it is worth very little.
- What happens if related-party transactions are not at arm's length?
- If a related-party or Connected Person transaction is priced away from arm's length, the tax authority can adjust it back to what an arm's-length price would have been, which can increase taxable income and the corporate tax due. Non-arm's-length payments to Connected Persons may also be disallowed as deductions. On top of the tax effect, related-party transactions that exceed the disclosure thresholds have to be reported on the Corporate Tax return, so a mispriced transaction can be visible rather than hidden. The safe approach is to price these dealings correctly up front and keep a short record of how the price was set.
Filed under: transfer pricing uae, arm's length principle, related parties, connected persons, corporate tax, master file, local file, OECD
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