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The United Arab Emirates (UAE) has formally introduced a comprehensive Transfer Pricing (TP) framework as part of its Corporate Tax (CT) regime, marking a significant milestone in the country’s tax landscape. The TP provisions are broadly aligned with the (Organisation for Economic Co-operation and Development) OECD Transfer Pricing Guidelines and aim to ensure that transactions between related parties are conducted on an arm’s length basis, consistent with best international practices. Further, payment/benefit by Taxable Person to Connected Person is deductible only if entered at market value and is exclusively for the business of the Taxable Person. The CT and TP Law further clarify that for the purpose of determining market value, the TP provisions shall be applied.
With the introduction of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses and the subsequent issuance of Ministerial Decision No. 97 of 2023, the UAE has established a clear regulatory framework governing related party transactions, documentation requirements, and disclosure obligations.
The UAE Transfer Pricing regime applies to all transactions and arrangements between Related Parties and Connected Persons, irrespective of whether such transactions are domestic or cross-border in nature. This includes transactions involving mainland entities, Free Zone entities, and dealings between taxable and exempt persons.
The TP rules are effective for financial years beginning on or after 1 June 2023, coinciding with the implementation of the CT law. Importantly, even entities that may be exempt from Corporate Tax or subject to a reduced tax rate are still required to comply with the arm’s length principle for their related party transactions.
Under the CT law, taxable persons are required to ensure that the consideration for related party transactions is consistent with the arm’s length principle, i.e., the price that would have been agreed between independent parties in comparable circumstances.
To determine arm’s length outcomes, the UAE recognizes internationally accepted TP methodologies. The Taxpayers are expected to apply the most appropriate method based on the facts, nature of the transaction, availability of reliable comparables, and functional profile of the parties involved.
In line with OECD recommendations under Base Erosion and Profit Shifting (BEPS) Action 13, the UAE has adopted a three-tiered transfer pricing documentation framework, comprising Country-by-Country Reporting, a Group Master File, and a Local File.
The UAE had introduced CbCR obligations prior to the implementation of the CT regime. UAE tax resident entities that are members of multinational enterprise (MNE) groups with consolidated group revenues of AED 3.15 billion or more in the preceding financial year are required to comply with CbCR notification and filing requirements.
CbCR provides tax authorities with a high-level overview of the group’s global footprint, including:
The Master File outlines the global business operations and Transfer Pricing policies of the multinational group. It serves as a blueprint of the group’s value chain and includes information on:
The Master File is intended to provide tax authorities with strategic insight into how profits are allocated across the group in relation to value creation. UAE-headquartered groups with no foreign operations are generally not required to maintain a Master File.
The Local File, also commonly referred to as the Transfer Pricing Study Report, focuses on the UAE entity’s specific related party transactions. It contains detailed, transaction-level analysis demonstrating compliance with the arm’s length standard, including:
The Local File is a critical document for substantiating the pricing of controlled transactions during assessments or audits.
The UAE entity is required to maintain a Master File and Local File if:
Even where these thresholds are not met, taxpayers are still required to ensure that related party transactions comply with the arm’s length principle and maintain adequate records to support their pricing positions. The Master File and Local File are required to be prepared and maintained contemporaneously and shall be submitted within 30 days of request by the FTA.
TPDF provide details of the controlled transactions, their value, the involved parties, and the Transfer Pricing methods used to determine arm’s length pricing.
*Dividend between Related Parties do not need to be disclosed and should not be considered in determining the AED 40 million or AED 4 million thresholds.
Aggregate value of payment or benefit to each connected person exceeds AED 0.5 million must be disclosed in Disclosure Form.
TPDF is to be submitted with the UAE CT Return within nine months of the end of the tax period.
The entities forming part of a Tax Group are treated as a single taxpayer for CT purposes and accordingly the allocation of profits amongst these entities is not relevant as they are considered a single Taxable Person. The Tax Group is required to prepare one Local File and one TPDF covering all the entities in the Tax Group (subject to meeting the relevant thresholds).
Free Zone entities, including those qualifying for a preferential Corporate Tax rate, are not excluded from the UAE Transfer Pricing regime. Compliance with the arm’s length principle and the Transfer Pricing documentation provisions is a key condition for maintaining Free Zone tax benefits.
Accordingly, Free Zone businesses must carefully evaluate their intra-group arrangements to ensure pricing aligns with economic substance and value creation. Further, the substance requirement for the entity operating in Free Zone shall be aligned with the functional profile of the entity for TP purposes.
Nexdigm’s Global Transfer pricing practice has been consistently recognised as a leading Transfer Pricing advisory firm, supporting clients across jurisdictions and industries. The team combines deep technical expertise with strong commercial understanding, supported by access to robust global databases essential for performing defensible TP analyses.
With an established on-ground presence in the UAE through three offices, complemented by a strong offshore support team in India, Nexdigm is well positioned to assist mid-sized and large multinational groups in navigating the evolving UAE transfer pricing landscape.
In 2018, UAE became the 116th country to join the Inclusive Framework on BEPS (Base Erosion and Profit Shifting). This has led to various tax reforms within UAE to align the tax policies with BEPS and to shed its image as a tax haven. Now as the authorities plan to introduce Corporate Income Tax in the UAE, companies need to adopt suitable tax positions and maintain correct documentation.
Additionally, UAE is also a part of the following international reporting standards:
Therefore, it becomes essential that multinational entities undertake cross-border activities in the UAE to determine the tax outflow and compliance requirements of UAE as well as foreign jurisdictions.
Nexdigm provides a range of international tax services, catering to all your tax matters and, depending on your business needs, even provides an in-house tax team. Our services include independent business advisory, business structuring, and assistance in tax and regulatory compliance. We ensure you stay compliant with all regulatory and tax matters in the UAE with greater accountability that comes from our decades of experience.
We consult businesses from a global tax and regulatory perspective, specifically keeping in mind the BEPS standards. With our unwavering focus on the client’s business objective, we don’t just come up with solutions, we help implement them.
We help in setting up tax-efficient structures and analyzing alternative investment jurisdictions. We assist international clients at various stages of investment to achieve their macro- objectives.
OECD is in the advance stages of implementing Pillar I and Pillar II inclusive framework for challenges arising out of digital transaction across the globe. The impact of the same could be significant to companies having business in various jurisdictions without any presence. We assist in evaluating the impact of the same optimize structures.
We identify the potential PE exposures to avoid unnecessary tax outflow within any jurisdiction. Our portfolio includes working closely with clients to build business models that are PE proof. We provide holistic compliance services, which include maintaining books of accounts and undertaking required compliances.
