UAE transfer pricing rules explained for finance teams

What are the UAE transfer pricing rules?

The UAE transfer pricing rules require that transactions between related parties and connected persons follow the arm's length principle, meaning prices match what independent parties would agree. They sit inside Federal Decree-Law 47 of 2022 on corporate tax, apply to all taxable persons, and are enforced by the Federal Tax Authority (FTA) using the OECD framework.

These rules took effect with the UAE corporate tax regime for financial years starting on or after June 1, 2023. They affect any business with cross-border or domestic dealings with group companies, owners, directors, or other connected parties. For the wider context, see our UAE Corporate Tax hub, which links every rule discussed below.

If your finance team is preparing its first corporate tax return, the uae transfer pricing rules are usually the most complex part of the file. This guide explains what counts as a related party transaction, which pricing methods the FTA accepts, what documentation you must keep, and the penalty range you face for getting it wrong.

Legal basis and scope

The rules come from Article 34 (arm's length principle), Article 35 (related parties and control), Article 36 (payments to connected persons), and Article 55 (documentation) of Federal Decree-Law 47 of 2022. The Ministry of Finance (MoF) issued a Transfer Pricing Guide in October 2023 with detailed examples.

Scope is broad. The rules apply to:

• Mainland companies subject to 9% corporate tax above AED 375,000 of taxable income.
• Free zone companies, including Qualifying Free Zone Persons (QFZPs) who benefit from a 0% rate on qualifying income.
• Branches of foreign companies operating in the UAE.
• Natural persons carrying on a business with turnover above AED 1,000,000 per year.

Small businesses electing for Small Business Relief (revenue up to AED 3,000,000 through 2026) must still apply the arm's length principle, even if their compliance burden is lighter.

Who is a related party?

Article 35 defines related parties using ownership, control, and family links. Two parties are related when:

• One owns 50% or more of the other, directly or indirectly.
• A third party owns 50% or more of both.
• One controls the other through voting rights, board appointments, or decision-making power.
• They are individuals within the fourth degree of kinship or affiliation, including by marriage or adoption.
• A partner in an unincorporated partnership transacts with that partnership.

Read the detailed breakdown on our Related Party Transactions UAE page for examples and edge cases.

Who is a connected person?

Article 36 covers connected persons, which is a narrower group focused on payments and benefits. A connected person is typically an owner with at least 5% holding, a director, an officer, or a relative of any of these. Payments to connected persons are only deductible if they match market value and correspond to services actually performed. We cover this in depth on Connected Persons UAE Corporate Tax.

The arm's length principle in practice

Arm's length means the price, margin, or financial outcome of a controlled transaction must equal what unrelated parties would have agreed in comparable circumstances. The FTA expects a four-step analysis for every material related party transaction.

1. Identify the transaction by reviewing contracts, conduct, and the commercial reality.
2. Perform a functional analysis of functions performed, assets used, and risks assumed (FAR analysis).
3. Select the most appropriate method from the five OECD methods.
4. Benchmark using comparable independent data and document the result.

Accepted transfer pricing methods

The UAE accepts the same five methods as the OECD Transfer Pricing Guidelines. You should pick the most appropriate one based on the facts, not the easiest to apply.

If none of the five fits, you may use another method, but you must justify in writing why each of the five was rejected.

Documentation requirements

Article 55 sets a three-tier documentation framework. The level of work depends on size and group footprint.

For step-by-step preparation guidance, see UAE Transfer Pricing Documentation, the Transfer Pricing Master File UAE template guide, and the Transfer Pricing Local File UAE walkthrough. For groups in scope of country-by-country reporting, our CbCR UAE page sets out the notification and filing steps.

Transactions excluded from the local file

Ministerial Decision 97 of 2023 confirms that certain transactions can be left out of the local file, including:

• Dealings with UAE resident parties that are not exempt and apply the same corporate tax rate.
• Dealings with natural persons acting independently.
• Dealings with juridical persons treated as independent of the taxpayer.
• Dealings with a permanent establishment of a non-resident in the UAE taxed at the same rate.

These exclusions reduce the file size but do not remove the arm's length obligation. You still need to price these transactions correctly.

Worked example: intra-group services

Assume UAE Co. receives back-office services from a parent in another country. The parent charges AED 2,000,000 with a 3% mark-up on costs. Here is how the analysis should look.

1. Functional analysis: the parent performs accounting and IT support. Risks are low. Assets are standard office systems.
2. Method: TNMM with a cost plus indicator is appropriate because the services are routine.
3. Benchmark: a search of independent service providers in comparable markets shows an interquartile range of 4% to 8% net cost plus mark-up.
4. Result: the 3% charge is below the range. UAE Co. should either accept a transfer pricing adjustment increasing its taxable income, or renegotiate the price for future years.
5. Documentation: keep the FAR analysis, benchmarking study, intercompany agreement, and invoices on file for at least 7 years.

Worked example: intercompany loan

A UAE subsidiary borrows AED 10,000,000 from its parent at 2% per year. Comparable third-party loans to companies with a similar credit profile carry 6% to 7%. The 2% rate is below arm's length. The FTA can disallow part of the interest deduction or impute additional income at the parent level if the parent is in scope.

Interest deductibility is also capped by the general interest deduction limitation rule at 30% of EBITDA, with a safe harbour of AED 12,000,000 per year. Transfer pricing and interest limitation rules apply together, not as alternatives.

Penalties for non-compliance

Penalties for transfer pricing breaches sit inside the broader tax procedures framework under Federal Decree-Law 17 of 2024 and Cabinet Decision 75 of 2023 on administrative penalties for corporate tax. Common exposures include:

• Failure to keep required records: AED 10,000 for the first offence, AED 20,000 if repeated within 24 months.
• Failure to submit the disclosure form, local file, or master file on time: monetary penalty plus possible reassessment.
• Incorrect tax return: AED 500 for minor errors, up to 5% of the tax shortfall for serious cases, with voluntary disclosure reducing exposure.
• Transfer pricing adjustment: the FTA can increase taxable income and apply late payment penalties of 14% per year on unpaid tax.

Cabinet Decision 106 of 2025 introduces a separate penalty range of AED 2,500 to AED 50,000 per violation for e-invoicing breaches, which often touch the same intercompany invoices a transfer pricing review covers. Aligning both workflows early avoids double exposure.

Advance pricing agreements

Article 59 of the corporate tax law allows taxpayers to apply for an advance pricing agreement (APA) with the FTA. An APA fixes the transfer pricing method for specified transactions over a set period, usually 3 to 5 years. The MoF has confirmed APA applications will open in stages. Until then, the safer route is robust contemporaneous documentation supported by a current benchmarking study.

Practical compliance checklist

Use this checklist before each financial year end:

• Map every related party and connected person relationship for the year.
• List all intercompany transactions: goods, services, royalties, loans, guarantees, cost contributions.
• Confirm the corporate tax disclosure form fields you need to populate.
• Check whether you cross the AED 200,000,000 local entity or AED 3,150,000,000 group thresholds.
• Run or refresh a benchmarking study for each material transaction category.
• Reconcile intercompany invoices to contracts and to the trial balance.
• Document the FAR analysis and method selection memo for each category.
• Keep records for at least 7 years, as required by Article 56.

Common mistakes to avoid

• Treating QFZP status as a shield: Qualifying Free Zone Persons still need full transfer pricing documentation. Failing the arm's length test can cause loss of the 0% rate.
• Using global group policy without local benchmarks: a parent's policy paper is not enough. The FTA expects UAE-specific or regional comparables where reliable data exists.
• Ignoring domestic transactions: related parties on the mainland and in free zones with different tax outcomes can still trigger adjustments.
• Late documentation: the local file and master file must be ready when the tax return is filed, not when the FTA asks.
• Forgetting connected person payments: director fees, owner salaries, and management charges to shareholders all need market-rate evidence.

Useful official sources

Primary references published by the regulators:

• UAE Ministry of Finance: corporate tax law, Transfer Pricing Guide, ministerial decisions.
• UAE Federal Tax Authority: registration, return filing, penalties, and clarifications.

For broader corporate tax context including rates, filing dates, and small business relief, return to the UAE Corporate Tax hub.

How EInvoice Direct supports your transfer pricing workflow

Transfer pricing reviews depend on clean invoice data. Every intercompany invoice you issue or receive becomes evidence in a local file or audit. EInvoice Direct captures structured PINT AE invoice data with an accredited service provider included at no extra charge, so your intercompany flows are audit-ready alongside your VAT and corporate tax positions. To see pricing for your business size, get UAE e-invoicing pricing.