The UAE’s transfer pricing framework under Ministerial Decision No. 97 of 2023 aligns with the OECD Transfer Pricing Guidelines. All related-party transactions must follow the arm’s length principle — meaning prices between connected entities must match what unrelated parties would agree in comparable circumstances. Documentation requirements apply at two thresholds, with Master File and Local File obligations triggered at AED 200 million revenue or MNE group membership above AED 3.15 billion. Last updated: May 2026.
For the broader UAE corporate tax framework, see UAE Corporate Tax: how the 9 % rate works in 2026. For the GCC tax comparison, see taxation in the GCC: a complete guide for foreign businesses.
What is transfer pricing and why does it matter in the UAE?
Transfer pricing governs the prices charged between related parties — parent companies and subsidiaries, sister entities under common ownership, and companies controlled by the same individuals. In the UAE context, transfer pricing matters most in three structures:
- Free zone parent + mainland subsidiary — the dual structure used to combine 0 % QFZP tax with UAE mainland customer access. Management fees, service charges, and IP royalties between the two entities must be priced at arm’s length.
- UAE entity + foreign parent — intercompany charges for headquarters services, technology licences, and funding must reflect what a third party would pay.
- UAE entity + related entities in other GCC countries — intra-group transactions with Saudi, Qatari, or Bahraini affiliates are subject to transfer pricing in both jurisdictions.
If the FTA determines that related-party transactions are not at arm’s length, it can adjust the entity’s taxable income upward — increasing the corporate tax liability and potentially triggering penalties.
What does the arm’s length principle require?
The arm’s length principle requires that the terms and conditions of related-party transactions are comparable to those between independent enterprises in similar circumstances. The five OECD-recognised transfer pricing methods apply:
- Comparable Uncontrolled Price (CUP) — compares the price charged in a related-party transaction to the price in a comparable third-party transaction
- Resale Price Method — works backward from the resale price to a third party, deducting an appropriate margin
- Cost Plus Method — adds an appropriate markup to the costs incurred by the supplier
- Transactional Net Margin Method (TNMM) — compares the net profit margin relative to an appropriate base (costs, sales, assets)
- Profit Split Method — allocates combined profits between related parties based on their relative contributions
The FTA accepts all five methods, with the most appropriate method selected based on the facts and circumstances of each transaction.
Who needs to prepare transfer pricing documentation?
All UAE entities with related-party transactions must apply the arm’s length principle, regardless of size. However, formal documentation requirements apply at two thresholds:
Master File and Local File
A UAE taxpayer must prepare and maintain a Master File and Local File if either condition is met:
- UAE revenue exceeds AED 200 million in the relevant tax period, or
- The entity is a member of an MNE group with consolidated revenue exceeding AED 3.15 billion (approximately EUR 750 million)
According to SimplySolved’s December 2025 update, transfer pricing documentation must be provided to the FTA within 30 calendar days upon request. The documentation is not filed proactively — it must be available and produced quickly if the FTA asks.
Country-by-Country Reporting (CbCR)
UAE entities that are Ultimate Parent Entities (UPEs) of MNE groups with consolidated revenue exceeding AED 3.15 billion must file a Country-by-Country Report with the FTA. This is a separate obligation from the Master File/Local File and follows the OECD BEPS Action 13 framework.
Disclosure Form
All UAE taxpayers with related-party transactions must submit a Transfer Pricing Disclosure Form as part of their annual corporate tax return, regardless of revenue thresholds. This form summarises the nature, volume, and pricing of related-party transactions.
What are the penalties for non-compliance?
Transfer pricing non-compliance carries two layers of risk:
- Income adjustment — the FTA can increase taxable income by the amount of the arm’s length shortfall, resulting in additional corporate tax at 9 %
- Penalties under Cabinet Decision No. 129 of 2025 — late payment of resulting tax attracts 14 % annual interest. Voluntary disclosures before audit reduce the penalty to 1 % per month; post-audit disclosures trigger 15 % fixed plus 1 % monthly.
The FTA can also impose administrative penalties for failure to maintain transfer pricing documentation or to submit the Disclosure Form.
How should a dual-structure (free zone + mainland) price its intercompany transactions?
The most common transfer pricing challenge in the UAE is the free zone parent charging the mainland subsidiary for management services, IP licences, or shared overhead. The arm’s length test requires:
- Benchmarking — comparing the fee to what independent companies charge for similar services in comparable markets
- Substance — the free zone parent must actually perform the services it charges for, with real employees and real operational activity
- Documentation — intercompany service agreements must be written, priced, and supported by contemporaneous documentation
If the free zone parent charges artificially high fees to the mainland subsidiary — shifting profits from the 9 %-taxed mainland entity to the 0 %-taxed free zone entity — the FTA can adjust the mainland’s deduction and increase its taxable income.
For the QFZP conditions that govern the free zone side, see UAE free zone tax: QFZP conditions and the 0 % rate explained.
Frequently asked questions
Do small businesses need transfer pricing documentation?
Small businesses below the AED 200 million threshold do not need a Master File or Local File. However, all businesses with related-party transactions must apply the arm’s length principle and submit the Transfer Pricing Disclosure Form with their annual tax return.
Does transfer pricing apply to transactions between two UAE free zone entities?
Yes. Transfer pricing applies to all related-party transactions, including transactions between two UAE free zone entities, between a free zone entity and an offshore entity, or between any entities under common ownership.
Can the FTA access my transfer pricing documentation during an audit?
Yes. The FTA can request transfer pricing documentation at any time during an audit or review. The documentation must be produced within 30 calendar days. Failure to produce it supports an income adjustment.
Sources and further reading
- Ministerial Decision No. 97 of 2023 — Transfer pricing documentation requirements
- Federal Decree-Law No. 47 of 2022 — UAE Corporate Tax Law, transfer pricing provisions
- Cabinet Decision No. 129 of 2025 — Revised penalty framework
- OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022)
- UAE Federal Tax Authority — Transfer Pricing Disclosure Form guidance (tax.gov.ae)