Transfer Pricing in the UAE: What Businesses Need to Know

Transfer pricing is one of those topics that a lot of business owners in the UAE haven't had to think about until recently. With the introduction of corporate tax, that's changed. If your business has transactions with related parties, whether that's a parent company, a subsidiary, or an associated business, transfer pricing rules now apply to you.

Understanding what's required and getting it right from the start is considerably easier than trying to fix it later.

What transfer pricing actually means

Transfer pricing refers to the prices charged for transactions between related parties. That could be goods, services, intellectual property, loans, or any other transaction that crosses between connected entities.

The principle behind transfer pricing rules is straightforward. Tax authorities want to ensure that transactions between related parties are priced as they would be between independent parties at arm's length. Without those rules, businesses could manipulate prices between related entities to shift profits into lower-tax jurisdictions.

How it applies in the UAE

The UAE's corporate tax framework includes transfer pricing rules that align with the OECD guidelines, which are the international standard most countries follow.

If your business has transactions with related parties, those transactions need to be priced on arm's length terms. You also need to maintain documentation that demonstrates this, and in some cases you are required to submit a disclosure form alongside your corporate tax return.

The documentation requirements depend on the size and nature of your business and the volume of related party transactions involved. Getting clarity on what applies to your specific situation is important.

Who it affects

Transfer pricing isn't only relevant to large multinationals, though that's the context it's most commonly associated with.

Any UAE business that has transactions with related parties needs to consider its transfer pricing position. That includes businesses with overseas parent companies, groups with multiple entities in different jurisdictions, and businesses that provide services to or receive services from connected parties anywhere in the world.

If you're unsure whether your business falls into this category, the answer is almost certainly yes if you have any connected entities outside the UAE.

The documentation requirement

This is where a lot of businesses are underprepared.

Transfer pricing documentation isn't just about having a policy in place. It requires a detailed analysis of the transactions, the methodology used to determine arm's length pricing, and the comparables that support that methodology. It needs to be in place before you file, not produced after the fact if questions are raised.

Businesses that don't have this documentation in order are exposed. The FTA has the authority to make adjustments to your taxable income if it determines that related party transactions haven't been priced correctly, and the burden of proof sits with the business.

What good preparation looks like

Start by identifying all transactions with related parties and understanding their nature and volume. Then assess whether the pricing on those transactions is defensible on arm's length terms. From there, put the right documentation in place and make sure it's reviewed and updated as the business evolves.

This isn't something to leave until your corporate tax filing is due. It's an ongoing compliance requirement that needs to be embedded in how the business operates.

Final thought

Transfer pricing is one of the more technical areas of the UAE's corporate tax framework, but that doesn't mean it's only relevant to large businesses. If you have related party transactions, it applies to you.

Getting the right advice early means you're in a strong position rather than scrambling to catch up when it matters most.