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Transfer Pricing in UAE – Compliance Guide for Businesses

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Essential Guide to TP – Transfer Pricing in UAE

Transfer Pricing in UAE is a tax principle that regulates how related companies set prices for goods, services, or intellectual property. It ensures that these transactions follow the arm’s length principle as if they were made between independent entities.

The UAE has introduced Transfer Pricing rules under the Corporate Tax (CT) regime. These rules align with OECD (Organisation for Economic Co-operation and Development) standards to promote transparency and protect the UAE tax base.

Importance of UAE Transfer Pricing Rules

The UAE Transfer Pricing rules prevent profit shifting and base erosion by ensuring fair taxation. For businesses, compliance means:

  • Transparent financial reporting

  • Accurate CT filing

  • Reduced risk of penalties

  • Stronger international credibility

Article 35 – Defining Related Parties

Under Article 35 of the UAE Corporate Tax Law, related parties include:

  • Parent companies and subsidiaries

  • Entities under common ownership or control

  • Individuals linked up to the fourth degree of kinship

Recognizing related parties is essential for applying Transfer Pricing in UAE correctly.

Documentation and Disclosures

Companies meeting certain thresholds must prepare and submit documentation, such as:

  • Master File – Outlines global business structure and pricing policies

  • Local File – Contains UAE-specific transaction details and analysis

  • CbCR (Country-by-Country Reporting) – Mandatory for groups with revenue above AED 3.15 billion

These disclosures help the Federal Tax Authority (FTA) evaluate compliance risks under UAE Transfer Pricing rules.

Transfer Pricing Documentation Standards

Documentation must follow OECD requirements, including:

  • Functional analysis of assets, risks, and roles

  • Establishing cost bases and allocation methods

  • Market comparison for goods, services, and intellectual property

Such practices not only support CT filing but also demonstrate compliance with international standards.

Pricing Intra-Group Transactions

Transactions between related entities should reflect fair market values. Businesses may use benchmarks like exchange rates, profit margins, or approved TP methods to determine correct pricing. Non-compliance can result in adjustments and penalties.

Common Transfer Pricing Methods in UAE

The UAE recognizes multiple approaches to evaluate intra-group pricing:

  • CUP (Comparable Uncontrolled Price) – Compares with similar market transactions

  • CPM (Cost Plus Method) – Adds markup to actual costs

  • TNMM (Transactional Net Margin Method) – Uses profit margins as a reference

  • PSM (Profit Split Method) – Divides profits based on contributions

Choosing the right method is crucial for both accuracy and compliance.

Excluded Intra-Group Services

Some services are excluded from chargeable transactions under Transfer Pricing in UAE, such as:

  • Duplicate services

  • Passive shareholder-related activities

  • Non-essential association costs

These exclusions are clearly defined in OECD and UAE guidelines.

Why Compliance Matters

Failure to comply with UAE Transfer Pricing rules may lead to fines of over AED 50,000. Businesses must ensure that their policies align with OECD standards and UAE regulations to avoid risks.

Advisory firms emphasize the importance of proactive documentation. With professional guidance, companies can simplify compliance and reduce exposure to penalties.

Transfer Pricing Support with Mhtaxationllc

At Mhtaxationllc, we specialize in:

  • Preparing Master File and Local File

  • Conducting functional and economic analysis

  • Supporting CT filing and FTA audits

  • Offering localized advisory services in UAE, Sharjah, and nearby regions

Our team provides cost-effective and reliable solutions for Transfer Pricing in UAE.

Conclusion

Transfer Pricing in UAE plays a vital role in Corporate Tax compliance. By following OECD standards and UAE rules, businesses can ensure fairness, transparency, and smooth tax operations.

Ensure compliance and avoid penalties with expert guidance from Mhtaxationllc. We provide full support for Transfer Pricing in UAE, including CT filing and documentation, to help your business stay risk-free and efficient.