UAE businesses that enter into transactions or arrangements with Related Parties and Connected Persons must ensure that those transactions comply with the Arm’s Length Principle.
VAT Accounting UAE provides transfer pricing services in Dubai to help companies identify controlled transactions, evaluate pricing policies, prepare documentation and comply with UAE Corporate Tax requirements.
Our transfer pricing support is suitable for mainland companies, free zone entities, multinational groups, family-owned businesses, holding companies and UAE businesses with domestic or international related-party transactions.
Need help with UAE transfer pricing compliance?
Call +971 52 406 3000 or email info@vataccountinguae.com.
What Is Transfer Pricing?
Transfer pricing refers to the pricing of transactions or arrangements between Related Parties or Connected Persons.
These transactions can include the sale or purchase of goods, management services, financing, intellectual property, cost allocations, employee secondments, guarantees and the use of group assets.
Transfer pricing rules require these transactions to be priced as though they had taken place between independent parties under comparable circumstances. This requirement is known as the Arm’s Length Principle.
A business cannot demonstrate compliance merely by issuing an invoice between group companies. It should be able to explain the commercial purpose, functions performed, assets used, risks assumed and basis used to calculate the price.
Who Must Follow UAE Transfer Pricing Rules?
UAE transfer pricing rules apply to transactions or arrangements involving Related Parties and Connected Persons.
The rules can apply to both domestic and cross-border transactions. This includes transactions between:
- Two UAE mainland companies
- A mainland company and a free zone entity
- Two free zone companies
- A UAE company and a foreign group company
- A company and its shareholder
- A company and a director or officer
- Companies under common ownership or control
- A head office and permanent establishment where applicable
The fact that both parties are located in the UAE does not automatically remove the transfer pricing requirement.
Businesses below the Master File and Local File thresholds should still retain reasonable records supporting the arm’s-length nature of their controlled transactions.
Related Parties and Connected Persons
Related Parties can include individuals or entities connected through ownership, control, family relationships, partnerships or common management.
Connected Persons can include an owner, director or officer of a taxable person, as well as a Related Party of such an owner, director or officer.
The classification depends on the legal and factual relationship between the parties. Businesses should maintain an updated group structure and ownership chart to identify all potentially controlled transactions.
Payments or benefits provided to Connected Persons should reflect the market value of the service or benefit and must be incurred wholly and exclusively for the purposes of the taxable person’s business to satisfy the applicable deduction requirements.
The Arm’s Length Principle
The Arm’s Length Principle asks whether independent parties would have agreed to comparable pricing and commercial terms under similar circumstances.
A transfer pricing analysis considers factors such as:
- Contractual terms
- Functions performed by each party
- Assets used
- Risks assumed
- Characteristics of goods or services
- Economic and market conditions
- Business strategies
- Availability of comparable transactions
Written agreements are important, but the actual conduct of the parties must also be considered. If the conduct differs from the agreement, the FTA may assess the transaction according to what the parties actually did.
UAE Transfer Pricing Methods
The UAE transfer pricing framework recognises five main methods.
Comparable Uncontrolled Price Method
This method compares the price charged in a controlled transaction with the price charged in a comparable transaction between independent parties.
Resale Price Method
This method begins with the price at which a product purchased from a Related Party is resold to an independent customer. An appropriate resale margin is then deducted.
Cost Plus Method
The Cost Plus Method applies an appropriate arm’s-length mark-up to the costs incurred by a supplier of goods or services.
Transactional Net Margin Method
This method compares the net profit margin earned in a controlled transaction with the margin earned by independent businesses in comparable circumstances.
Transactional Profit Split Method
The Profit Split Method identifies and divides the combined profit from controlled transactions based on the relative contributions of the parties.
The most appropriate method depends on the transaction, functional analysis and availability of reliable comparable information.
Transfer Pricing Documentation Requirements
Businesses should maintain documentation explaining how their controlled transactions comply with the Arm’s Length Principle.
The documentation can include:
- Group and ownership structure
- Description of the business
- Related Party register
- Controlled-transaction schedule
- Intercompany agreements
- Functional, asset and risk analysis
- Selection of the transfer pricing method
- Benchmarking and comparable-company analysis
- Financial information
- Allocation keys and calculations
- Supporting invoices and correspondence
A Taxable Person must maintain both a Master File and Local File when either of the following conditions is met:
- The Taxable Person is part of a multinational enterprise group with consolidated group revenue of at least AED 3.15 billion in the relevant tax period; or
- The Taxable Person’s revenue is at least AED 200 million in the relevant tax period.
A person below these thresholds may not be required to maintain a formal Master File and Local File but must still support the arm’s-length nature of controlled transactions.
The FTA can request transfer pricing information, which may need to be provided within 30 days or another period specified by the Authority.
Master File and Local File
The Master File provides a high-level overview of the multinational group. It can include the group structure, business activities, intangible assets, financing arrangements, transfer pricing policies and consolidated financial information.
The Local File focuses on the UAE taxable person and its material controlled transactions. It normally contains detailed information about the local business, Related Parties, transaction values, functional analysis, selected pricing methods, benchmarking and financial results.
These documents should be consistent with the company’s contracts, accounting records, Corporate Tax return and actual business conduct.
Our Transfer Pricing Services in Dubai
VAT Accounting UAE provides practical transfer pricing assistance tailored to each business’s structure and controlled transactions.
Our services include:
- Transfer pricing applicability assessment
- Related Party and Connected Person identification
- Controlled-transaction mapping
- Transfer pricing policy development
- Functional, asset and risk analysis
- Intercompany agreement review
- Transfer pricing method selection
- Benchmarking studies
- Master File preparation
- Local File preparation
- Corporate Tax disclosure support
- Connected Person payment review
- Intra-group service analysis
- Financing and intercompany loan reviews
- Free zone transfer pricing compliance
- FTA information-request support
Our Transfer Pricing Process
1. Understand the Group Structure
We review the legal structure, ownership, management relationships and UAE and overseas group entities.
2. Identify Controlled Transactions
Transactions involving goods, services, loans, intellectual property, cost allocations and other arrangements are identified and categorised.
3. Conduct the Functional Analysis
We assess the functions performed, assets used and risks assumed by each party to the controlled transaction.
4. Select the Appropriate Method
The most suitable transfer pricing method is selected based on the nature of the transaction and available comparable information.
5. Perform Benchmarking
Where required, comparable independent transactions or businesses are identified to determine an arm’s-length range.
6. Prepare the Documentation
The pricing policy, analysis, calculations and supporting evidence are documented and aligned with the Corporate Tax return.
Transfer Pricing for Free Zone Companies
Transfer pricing rules apply to free zone companies, including Qualifying Free Zone Persons.
Transactions between a free zone company and its Related Parties must comply with the Arm’s Length Principle. This can include transactions with mainland group companies, foreign affiliates, shareholders and other free zone entities.
Transfer pricing compliance is also one of the conditions relevant to Qualifying Free Zone Person treatment. Failure to comply can create Corporate Tax risks and may affect the company’s free zone tax position.
Why Choose VAT Accounting UAE?
VAT Accounting UAE combines transfer pricing support with Corporate Tax, accounting and bookkeeping knowledge. This allows us to evaluate both the pricing policy and the financial information used to support it.
Our Dubai-based team provides clear communication, confidential document handling and practical recommendations based on the company’s commercial operations.
We help businesses establish defendable pricing arrangements before the Corporate Tax return is filed instead of preparing documentation only after receiving an FTA request.
Frequently Asked Questions
Do UAE transfer pricing rules apply to domestic transactions?
Yes. Transfer pricing rules apply to transactions between Related Parties and Connected Persons whether they are located in the UAE mainland, a free zone or another country.
Does every company need a Master File and Local File?
No. These documents are required when the taxable person meets the relevant revenue or multinational-group threshold. Smaller businesses must still maintain reasonable records supporting arm’s-length pricing.
What are the Master File and Local File thresholds?
The requirement generally applies when the taxable person has revenue of at least AED 200 million or belongs to a multinational group with consolidated revenue of at least AED 3.15 billion.
Do transfer pricing rules apply to free zone companies?
Yes. Free zone companies, including Qualifying Free Zone Persons, must comply with the Arm’s Length Principle for transactions involving Related Parties and Connected Persons.
What is a transfer pricing benchmarking study?
A benchmarking study uses comparable independent transactions or businesses to evaluate whether a controlled transaction falls within an arm’s-length range.
How can VAT Accounting UAE help?
We can identify controlled transactions, review intercompany pricing, conduct functional analysis, prepare benchmarking studies and support Master File, Local File and Corporate Tax disclosure requirements.
Get Transfer Pricing Support in Dubai
Contact VAT Accounting UAE for transfer pricing assessments, Related Party transaction reviews, benchmarking, documentation and UAE Corporate Tax compliance support.
Phone: +971 52 406 3000
Email: info@vataccountinguae.com
Address: Office No. 520, Al Nasr Plaza, Oud Metha Road, next to Oud Metha Metro Station, Dubai, United Arab Emirates