The UAE’s integration into the global economy has created vast opportunities for cross-border trade, foreign investment, and multinational operations. This growing international footprint has also introduced a more sophisticated tax environment, particularly since the introduction of the Corporate Tax Law. Effective for financial years starting on or after 1 June 2023, the law brought Transfer Pricing (TP) rules into the UAE’s corporate tax framework for the first time.
Transfer pricing regulations are not just a technical tax matter. They define how related companies within the same group should price transactions involving goods, services, financing arrangements, and intellectual property. These rules are designed to ensure that prices reflect what would have been agreed upon between independent parties in open market conditions, a concept known as the Arm’s Length Principle.
For UAE businesses, particularly those engaged in intra-group or cross-border dealings, mastering these rules is not optional. It is a key element of tax compliance, corporate governance, and operational transparency. Failing to do so can lead to costly disputes with the Federal Tax Authority (FTA), penalties, and reputational harm in global markets.
Transfer pricing refers to the pricing of transactions between associated enterprises or entities within the same corporate group or otherwise connected through ownership or control. These transactions can include:
Sale of finished goods.
Sale or purchase of raw material, fixed assets, machinery, or other intangibles.
Reimbursement of expenses paid or received
Provision of management or technical services.
Intercompany financing and lending arrangements.
Under UAE corporate tax law, these related-party transactions must be priced as if they were between unrelated entities negotiating in their own best interests. This principle prevents the artificial shifting of profits to jurisdictions with lower or zero tax rates, thereby preserving each country’s rightful share of tax revenue.
The UAE’s transfer pricing rules are closely aligned with the OECD Transfer Pricing Guidelines, meaning they reflect global standards while being adapted to the UAE’s economic environment. Businesses must now be prepared to apply recognised methods to validate their pricing and maintain comprehensive documentation to support it.
The UAE Corporate Tax Law recognises five primary methods for testing whether related-party transactions meet the Arm’s Length Principle. Each method is designed to compare the controlled transaction to market conditions, ensuring pricing is commercially justifiable.
The CUP method compares the price charged in a related-party transaction to the price charged in an identical or similar transaction between independent parties under comparable conditions. This is often considered the most direct and reliable method when truly comparable data exists.
RPM begins with the resale price at which goods purchased from a related party are sold to an independent customer. From this, an appropriate gross margin is subtracted to arrive at the original transfer price. This method is often suitable for distribution arrangements where the reseller performs limited value-adding functions.
CPM determines the transfer price by adding a suitable profit margin to the costs incurred by the supplier of goods or services in a related-party transaction. It is frequently applied to manufacturing or service provision where costs can be accurately determined.
TNMM examines the net profit margin relative to an appropriate base (such as sales, costs, or assets) that a taxpayer earns from a related-party transaction. This margin is compared with those earned in comparable independent transactions.
PSM identifies the combined profits arising from transactions between related parties and then allocates them based on the relative contributions of each party to value creation. This method is generally used when transactions are highly integrated and cannot be evaluated separately. While these are the main recognised methods, the law allows for an alternative approach if it achieves a result consistent with the arm’s length principle and is backed by solid economic analysis.
The significance of transfer pricing in the UAE extends beyond legal compliance. The proper application of these methods impacts multiple aspects of business strategy and risk management.
The Corporate Tax Law requires that related-party transactions comply with the arm’s length principle. Incorrectly priced transactions can result in upward tax adjustments, increasing taxable income and triggering penalties.
Robust transfer pricing policies and documentation reduce the risk of disputes with the FTA. Businesses must be able to justify their chosen pricing method through transparent and defensible analysis.
Adopting recognised methods ensures that intercompany pricing reflects true economic value. This builds credibility with regulators, investors, and other stakeholders.
Compliance with OECD-aligned rules facilitates smoother international operations, as multinational partners and tax authorities recognise these principles as global best practice.
While the framework is clear, implementing transfer pricing in practice is complex. Common challenges faced by UAE businesses include:
Data Availability: Accessing high-quality, comparable transaction data, especially within the region, can be difficult.
Multi-Jurisdictional Complexity: Groups operating in several countries must follow varying local regulations alongside the UAE’s rules.
Regulatory Evolution: The UAE’s tax landscape is still maturing, requiring businesses to remain vigilant to new guidance and updates from the FTA.
Documentation Burden: Preparing a compliant Master File, Local File, and Transfer Pricing Disclosure Form requires significant effort and precision.
UAE businesses can strengthen compliance by following a structured process:
Identify Related Parties and Transactions: Review all corporate structures to determine relationships as per the Corporate Tax Law’s definitions, which may differ from accounting definitions.
Conduct a Functional Analysis: Map out the functions performed, assets used, and risks assumed by each party to the transaction.
Select the Most Appropriate Method: Choose the method that best reflects the nature of the transaction and availability of reliable data.
Benchmark Against Market Data: Use credible databases and comparability filters to validate the selected pricing approach.
Maintain Comprehensive Documentation: Prepare and update records to meet FTA requirements and support the company’s position during a review or audit.
Transfer pricing requires in-depth technical expertise, strong familiarity with UAE tax laws, and the ability to align local requirements with global standards. This is where specialised advisory firms like ICB add substantial value.
Expert Advisory: ICB’s professionals provide tailored strategies for selecting and applying the most appropriate transfer pricing method for each business’s circumstances.
Regulatory Alignment: Their guidance ensures full compliance with both UAE Corporate Tax Law and OECD guidelines.
Comprehensive Documentation: ICB assists in preparing robust files and disclosure forms to withstand FTA scrutiny.
Cross-Border Tax Insight: Their global experience equips them to address complex multi-jurisdictional transfer pricing issues effectively.
Working with such professionals allows businesses to transform transfer pricing from a compliance obligation into a tool for strategic advantage.
In the UAE’s evolving tax environment, understanding and applying transfer pricing methods is now a critical business requirement. These rules are not merely technical, they safeguard fair taxation, protect against disputes, and enable transparent, sustainable operations.
For businesses engaged in cross-border trade or operating as part of a multinational group, adhering to the arm’s length principle and applying recognised methods is both a legal duty and a strategic necessity. With the support of expert advisors such as ICB, UAE companies can move forward in this complex area with confidence, focusing their energy on growth while maintaining full compliance with the law.
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