The United Arab Emirates (UAE) introduced Transfer Pricing (TP) regulations as part of its Corporate Tax Law, effective for financial years starting on or after 1 June 2023.
These regulations align with the OECD Transfer Pricing Guidelines, ensuring that cross-border transactions between related parties are conducted at arm’s length.
Key Features of UAE Transfer Pricing Regulations
1. Arm’s Length Principle
All transactions between related parties and with connected persons must be priced as if conducted between independent, unrelated entities under comparable circumstances.
2. Documentation Requirements
Businesses subject to Corporate Tax must maintain:
- Master File: Provides a high-level overview of the global business operations and TP policies of the multinational group.
- Local File: Contains detailed information about the local entity’s related-party transactions.
- Disclosure Form: A TP disclosure form must be submitted along with the corporate tax return, declaring related party transactions and transfer pricing methods used.
Thresholds for documentation (e.g., revenue or transaction values) are set by Cabinet Decision No. 44 of 2023, and may vary depending on the size and complexity of the business.
3. Applicability
TP rules apply to:
- UAE-resident businesses that are part of a multinational enterprise (MNE) group or engage in related-party transactions.
- Free zone companies that wish to maintain qualifying status under the 0% tax rate must also comply with TP requirements.
4. Methods Allowed
The UAE recognizes standard OECD TP methods, such as:
- Comparable Uncontrolled Price (CUP)
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method (TNMM)
- Profit Split Method
Businesses must select the most appropriate method based on the transaction nature and available data.
5. Penalties for Non-Compliance
Failure to maintain or submit TP documentation or misrepresenting information, may result in administrative penalties and adjustments to taxable income.