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Transfer Pricing in UAE
The UAE introduced its first-ever federal corporate tax effective 1 June 2023, fundamentally changing the tax landscape for businesses operating in the Emirates. Federal Decree-Law No. 47 of 2022 established a 9% corporate tax rate on taxable income exceeding AED 375,000, with a 0% rate on income below this threshold. Free zone qualifying persons benefit from a 0% rate on qualifying income. Critically, the Corporate Tax Law includes comprehensive transfer pricing provisions aligned with the OECD Transfer Pricing Guidelines, making TP compliance a new requirement for UAE businesses with related-party transactions.
The UAE's TP rules follow the OECD arm's length principle and standard methodology, including the interquartile range (25th–75th percentile). Ministerial Decision No. 97 of 2023 specifies documentation requirements in three tiers: a Disclosure Form that all taxable persons with related-party transactions must file with their tax return, a Local File required for taxable persons with revenue ≥AED 200 million or related-party transactions ≥AED 40 million, and a Master File for groups with consolidated revenue ≥AED 3.15 billion. The documentation requirements broadly follow OECD Chapter V and require contemporaneous preparation.
The introduction of TP in the UAE creates specific challenges for businesses that previously operated without tax considerations influencing intercompany pricing. Many UAE businesses — particularly in trading, real estate, and services — have historically priced intercompany transactions without formal documentation or benchmarking analysis. The transition to a transfer pricing regime requires these businesses to: review existing intercompany arrangements, prepare functional analyses, select appropriate TP methods, identify comparable data, and prepare documentation. Free zone entities face particular complexity: transactions between a free zone person and a related mainland person must be arm's length to ensure the free zone's qualifying income benefits from the 0% rate. The FTA has indicated that it will take a pragmatic approach during the initial years of the regime, but businesses should not delay compliance.
UAE TP Quick Reference
Common TP Audit Triggers in UAE
Transactions between free zone and mainland related parties
Significant intercompany service charges or management fees
Intercompany financing with non-market interest rates
UAE entity margins significantly different from comparables
Related-party transactions with group entities in zero-tax jurisdictions
High-value goods or commodity transactions between group entities
UAE vs. OECD Guidelines: Key Differences
UAE follows OECD Guidelines closely as a new regime. Key features: (1) entirely new regime effective June 2023 — no historical TP enforcement precedent; (2) free zone/mainland interaction is unique to UAE; (3) AED 200M revenue / AED 40M related-party transaction thresholds for Local File; (4) pragmatic FTA approach expected during initial years; (5) 9% corporate tax rate creates lower stakes than high-tax jurisdictions but TP compliance is still mandatory.