Transfer Pricing in the UAE | Rules, Documentation, and Compliance Guide

Transfer pricing is now essential for UAE corporate tax compliance for groups with related-party deals. This guide covers arm’s length rules, 3-layer documentation (master/local file, disclosures), thresholds, free zone impacts, common pitfalls, audits, and best practices, plus how Arnifi handles benchmarking, setup, and ongoing support.

Introduction

Transfer pricing in the UAE has evolved from a mere best practice into a mandatory cornerstone of corporate tax compliance, particularly following the rollout of the nation’s federal corporate tax regime. Businesses with intra-group transactions, whether multinational enterprises, domestic combinations engaging in related-party dealings, or even free zone entities interacting with affiliates, must now rigorously justify their pricing to align with arm’s length standards. This comprehensive guide is articulated with the UAE’s transfer pricing framework, detailing key rules, tiered documentation requirements (master file, local file, and disclosures), compliance thresholds, common pitfalls, audit risks, and actionable strategies for free zone operators and beyond, empowering you to maintain seamless adherence and audit awareness and preparedness.

What Is Transfer Pricing?

Transfer pricing refers to the prices applied to transactions between related parties or connected persons within the same group. These can include goods, services, financing, intellectual property, or management support. Under UAE corporate tax law, such transactions must follow the Arm’s Length Principle, meaning they should be priced as if the parties were independent and dealing on commercial terms.

Related-party and connected-person transactions come into scope whenever there is common ownership, control, or influence, such as group companies, shareholders, founders, directors, and certain key managers. If these relationships exist, the tax authority expects that internal prices and margins can be explained and supported.

Transfer Pricing Rules in the UAE

UAE transfer pricing rules are built around the Arm’s Length Principle, aligned with international standards but applied in a practical, UAE-specific context.

Arm’s Length Methods

To show that prices are arm’s length, businesses are expected to use one or more of the following methods, depending on what fits the transaction best:

• Comparable Uncontrolled Price (CUP)
  
• Resale Price Method
  
• Cost-Plus Method
  
• Transactional Net Margin Method (TNMM)
  
• Profit Split Method
  

The method chosen should be reasonable, consistent, and supported by data.

What Counts as Related-Party Transactions?

Transfer pricing applies to a wide range of relationships and structures, including:

• Group companies under common ownership or control
  
• UAE and foreign subsidiaries or sister companies
  
• Free zone and mainland entities within the same group
  
• Connected persons such as founders, shareholders, directors, and certain managers
  

When Transfer Pricing Applies?

Transfer pricing rules apply to both cross-border and domestic related-party dealings. This includes:

• Cross-border sales and purchases of goods or services
  
• Domestic transactions between related parties (including free zone–mainland flows)
  
• Financial support such as loans, guarantees, and cash pooling
  
• Use of intellectual property, brand, or technology
  
• Management fees, cost-sharing arrangements, and back-office services
  

Documentation Requirements | Three Layers

UAE transfer pricing compliance is supported by three main documentation pillars. Together, they provide the full story behind group pricing.

Master File

The master file gives a high-level global picture of the group and typically includes:

• Group structure and ownership
  
• Consolidated financial information
  
• Overview of the value chain and how the group creates profit
  
• General transfer pricing policies and allocation principles
  

Local File

The local file focuses on the UAE entity or entities, and covers:

• Detailed description of the UAE entity’s functions, assets, and risks
  
• Specific related-party transactions involving the UAE entity
  
• Functional and economic analysis of each key transaction
  
• Transfer pricing method selection and benchmarking results
  

Disclosure Form

A brief disclosure is usually filed with the corporate tax return for entities that meet certain thresholds. It summarises:

• Related parties and connected persons
  
• Types of controlled transactions
  
• Whether a master file and a local file are maintained
  

The exact thresholds and criteria follow the guidance of the UAE tax authority.

Compliance Thresholds and Who Must File?

Not every business will have to file a master and local file, but many will need to comply based on size, revenue, or transaction thresholds. Key points include:

• Threshold-based requirements for maintaining and filing transfer pricing documentation
  
• Interaction with economic substance rules, particularly where there are geographically mobile activities
  
• Free zone companies that transact with related parties (inside or outside the UAE) may also fall within the documentation net
  

Even if a business is small, exempt, or enjoying free zone benefits, it must still be able to show that its prices follow the arm’s length standard if challenged.

How to Prepare Transfer Pricing Documentation in the UAE?

A structured, step-by-step approach makes transfer pricing manageable:

1. Identify related parties and connected persons
   
2. Map and categorise all controlled transactions (goods, services, financing, IP, cost sharing)
   
3. Perform a functional analysis to understand who does what, uses which assets, and bears which risks
   
4. Select the most appropriate transfer pricing method for each category of transaction
   
5. Conduct benchmarking using regional and global comparables where possible
   
6. Prepare the master file and local file in line with UAE requirements
   
7. Complete and file disclosure forms together with the corporate tax return, where required
   
8. Maintain audit-ready evidence such as intercompany agreements, invoices, calculations, and internal memos
   

Common Transfer Pricing Mistakes in the UAE

Several recurring issues can create unnecessary risk:

• Charging group management fees without clear services or economic benefit
  
• Applying offshore mark-ups without sufficient UAE substance to support them
  
• Not performing or documenting benchmarking studies
  
• Treating free zone mainland transactions as automatically exempt or not scrutinised
  
• Waiting until an audit to create documentation rather than maintaining it contemporaneously
  

Penalties, Audits, and Risk Areas

The UAE tax authority is especially attentive to:

• Intra-group services, management fees, and head office charges
  
• Royalties and intellectual property fees paid to related parties
  
• Financing arrangements, interest rates, and guarantees
  
• Large or unusual year-on-year changes in margins within the group
  

Non-compliance can lead to tax adjustments, penalties, and interest, as well as an increased likelihood of future audits. Keeping transfer pricing policies updated annually significantly reduces this risk.

Transfer Pricing for Free Zone Companies

Free zone entities often assume transfer pricing is less relevant because of 0% corporate tax on qualifying income. In reality, it is still critical:

• Free zone companies must distinguish between qualifying and non-qualifying income
  
• If related-party prices are not arm’s length, 0% benefits may be jeopardised for some income
  
• Transactions with related entities abroad or on the mainland still need to be documented and justified
  

Proper transfer pricing supports the integrity of free zone tax benefits and avoids unpleasant surprises.

Best Practices to Stay Compliant

To embed transfer pricing into everyday practice:

• Review transfer pricing positions annually
  
• Use segmental accounting to separate related-party and third-party results where relevant
  
• Put in place robust intercompany agreements that reflect actual conduct
  
• Ensure real economic substance in the UAE, where profits are booked
  
• Use independent benchmarking databases and studies rather than arbitrary mark-ups
  

Treat transfer pricing as part of the group’s overall governance, not just a tax exercise.

How Arnifi Helps with Transfer Pricing Compliance?

Arnifi supports businesses across the full transfer pricing lifecycle, including:

• Preparing master file and local file documentation
  
• Running benchmarking studies tailored to your industry and region
  
• Advising on group structures, pricing policies, and substance alignment
  
• Assisting during audits and tax authority queries
  
• Managing yearly updates and ongoing compliance routines
  

By turning complex rules into clear, practical frameworks, Arnifi helps protect your UAE structure, preserve free zone incentives where applicable, and reduce audit risk.

Conclusion

Transfer pricing is now central to corporate tax compliance in the UAE. Getting it right is not just about avoiding penalties; it is also key to safeguarding free zone benefits and ensuring that your group structure stands up to scrutiny. Businesses should treat transfer pricing documentation as an essential, non-negotiable annual requirement, and, with the right support, it can become a manageable and predictable part of doing business in the UAE.