Informational
May 29, 2026
If your UAE business has any financial transactions with a related company, a shareholder, a director or an overseas parent — you have related party transactions. Under UAE corporate tax law, every one of those transactions must be priced as if it were conducted between two completely independent parties. This is the arm's length principle and it is not optional.
In 2026, transfer pricing is the FTA's primary enforcement tool for preventing profit shifting. Transactions that once went unquestioned — management fees to an overseas parent, intercompany loans, royalties paid to a group entity — are now subject to detailed scrutiny every time a corporate tax return is filed. If your pricing cannot be justified, the FTA adjusts your taxable income upward and imposes the resulting tax plus penalties.
Transfer pricing is the pricing of transactions between related parties — companies or individuals that are connected through ownership, control or family relationships. Under Federal Decree-Law No. 47 of 2022 (UAE Corporate Tax Law), Article 34 requires that all transactions between related parties comply with the arm's length principle: the price charged must be the same as what two independent parties would agree on in an open market.
Related party transactions in the UAE include:
• Management fees paid to an overseas parent or group entity
• Intercompany loans — both the loan itself and the interest rate charged
• Royalties paid for the use of intellectual property owned by a related entity
• Services provided between group companies — IT support, HR, finance, legal
• Goods sold between related entities within the same group
• Rent charged between related companies for shared premises
The arm's length principle requires that the price of any transaction between related parties must reflect what two unrelated, independent parties would agree on in similar circumstances. If your UAE company pays management fees to an overseas parent, the fee must be comparable to what an independent management consultant would charge for the same services. If it is not, the FTA can disallow the deduction and increase your taxable income.
Under Ministerial Decision No. 97 of 2023, a Transfer Pricing Disclosure Form must be submitted alongside every corporate tax return for businesses whose:
• Aggregate related party transactions exceed AED 40 million in the tax period
• Payments or benefits to connected persons — shareholders, directors, their family members — exceed AED 500,000 in aggregate
Important: Even businesses below these thresholds must still apply the arm's length principle to all related party transactions. The disclosure form threshold determines what must be formally disclosed to the FTA — it does not exempt smaller transactions from the arm's length requirement.
No. Transfer pricing applies to every UAE taxable person with related party transactions — including UAE family-owned businesses, SMEs with shareholder loans, and any company that pays management fees or charges rent to a connected entity. The common misconception is that transfer pricing is only for large multinationals. In the UAE in 2026, any business with an intercompany transaction has a transfer pricing obligation.
Businesses that meet the thresholds under Ministerial Decision No. 97 of 2023 must prepare and maintain:
The Local File provides detailed information about the UAE entity's related party transactions — what they are, why they are priced as they are, and which transfer pricing method was used to establish the arm's length price. The Local File must be submitted to the FTA within 30 days of a formal request. It is not submitted with every tax return but must be ready for production at any time.
The Master File provides an overview of the entire multinational group's business — its structure, how value is created, where IP is held, and how profits are allocated across jurisdictions. Master File preparation is required for businesses with UAE revenue above AED 200 million or part of a group with consolidated global revenue above AED 3.15 billion.
The CbC report is required for multinational groups with global consolidated revenue above AED 3.15 billion. It provides jurisdiction-by-jurisdiction data on revenue, profit, tax paid, employees and assets across the entire group.
The FTA can request your Local File within 30 days of a formal notice. This can happen during a routine corporate tax audit, as a targeted transfer pricing review, or as part of a broader compliance check. Businesses that cannot produce documentation within 30 days face penalties. The documentation must already exist — you cannot prepare it after the request arrives.
The FTA has indicated particular focus on these transaction categories:
Paying an overseas parent or group company for management services is one of the most common and most challenged intercompany transactions. The FTA requires that you can demonstrate the services were actually provided, that they provided genuine economic value to the UAE entity, and that the fee is consistent with what an independent party would pay. A management fee that cannot pass this benefit test will be disallowed.
If your UAE company has borrowed from or lent to a related entity, the interest rate must reflect market rates for equivalent financing. Zero-interest loans between related parties, or loans at rates significantly above or below market, are prime FTA audit targets. The arm's length interest rate must be supportable by reference to comparable market rates.
Using a UAE free zone company with Qualifying Free Zone Person status to book profits that economically belong to a mainland entity — where 9% tax applies — is one of the FTA's most actively targeted structures. All transactions between QFZP entities and mainland affiliates must be at arm's length, and the FTA will scrutinise the substance behind any profit allocation.
If your VAT returns show different intercompany transaction values from those reported in your corporate tax return, the FTA's systems flag the discrepancy automatically. Inconsistency between VAT and CT data is one of the most common triggers for a transfer pricing audit — even when the underlying transactions are genuinely arm's length.
The FTA will make an upward adjustment to your taxable income — adding back the amount by which your profit was reduced by the non-arm's length pricing. You then pay corporate tax on the adjusted income plus a penalty. If you made a voluntary disclosure after receiving an audit notification, a 15% fixed penalty plus monthly interest applies. If the FTA discovers the issue during an audit without prior disclosure, the penalties are higher. The safest position is always to document correctly before filing.
The FTA accepts several internationally recognised transfer pricing methods, consistent with OECD guidelines:
• Comparable Uncontrolled Price method — comparing the intercompany price to prices charged in similar uncontrolled transactions
• Cost Plus method — adding an appropriate markup to the cost of providing the service or goods
• Resale Price method — deducting an appropriate margin from the price at which goods are resold to an independent buyer
• Transactional Net Margin method — comparing the net profit margin of the controlled transaction to comparable independent transactions
The FTA uses the interquartile range as its benchmark. If your transaction price falls outside the 25th to 75th percentile of comparable market transactions, it is treated as at risk of adjustment. This is why documentation must include a formal benchmarking analysis — not just an assertion that the price is fair.
Alyah Audit is a Ministry of Economy approved audit firm and FTA registered tax agent based in JLT Dubai. Our transfer pricing documentation services cover the full scope of UAE transfer pricing compliance:
• Related party transaction review — identifying all transactions requiring transfer pricing analysis
• Benchmarking analysis — establishing arm's length pricing ranges using comparable market data
• Local File preparation — the full documented analysis required by Ministerial Decision No. 97 of 2023
• Transfer Pricing Disclosure Form completion — submitted as part of the corporate tax return
• Intercompany agreement drafting — formalising the terms of related party transactions
• Ongoing review — updating documentation annually as transactions and market conditions change
We also provide corporate tax advisory and filing and tax risk assessment services. Book a free consultation at alyahaudit.ae/contact.
Related party transactions in your UAE business? Get transfer pricing documentation before the FTA asks for it. Alyah Audit — FTA registered tax agent, JLT Dubai. Free consultation at alyahaudit.ae/contact
Yes. Directors and shareholders are connected persons under UAE corporate tax law. Any salary, bonus, loan, rent or benefit paid to a director-shareholder must be at market value. If a director's salary significantly exceeds what an independent person in the same role would earn, or if the business provides a loan to a shareholder without market interest, this creates a transfer pricing risk that must be documented and disclosed.
You need to document: the purpose of the loan, the amount, the interest rate applied, and evidence that the interest rate is comparable to what an independent lender would charge for equivalent financing to a similar borrower. This typically requires a benchmarking analysis of comparable market lending rates. Zero-interest loans and loans at non-market rates are high FTA audit risk — restructuring or documenting them before the next corporate tax return is the priority.
Yes. The AED 500,000 connected person threshold for the Transfer Pricing Disclosure Form is relatively low, and many UAE SMEs with shareholder loans exceed it. Even below this threshold, the arm's length principle applies to all related party transactions. Shareholder loans at zero interest or below-market rates are a common compliance gap for UAE SMEs — they are easy to address if documented correctly before the FTA raises the issue.
Transfer pricing documentation must be reviewed and updated annually — for each corporate tax period. Market conditions, company financials and the nature of intercompany transactions change year to year. Documentation prepared in 2024 may not support the positions taken in a 2025 or 2026 tax return. Annual review is a compliance obligation, not a one-time exercise.
If you cannot produce the required documentation within 30 days of an FTA request, you face financial penalties under the UAE Tax Procedures Law. The FTA may also make transfer pricing adjustments without the benefit of your documentation — meaning they apply their own pricing assumptions, which are unlikely to be in your favour. Having documentation prepared in advance of any FTA query is always the significantly lower-risk position.
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