The introduction of Corporate Tax in the UAE and the alignment of Transfer Pricing (TP) regulations with OECD guidelines have made Transfer Pricing compliance in UAE a critical aspect of tax management for businesses engaged in intra-group transactions. Companies engaging in cross-border transactions or dealing with related parties must ensure that their pricing adheres to the arm’s length principle (ALP)—meaning that intercompany transactions should be priced as if they were between independent parties in a competitive market adhering to the arm’s length principle.
While these regulations aim to prevent profit shifting and tax avoidance, many businesses—especially those new to corporate taxation—face significant challenges in understanding and implementing Transfer Pricing compliance in UAE. In this article, we discuss the major Transfer Pricing challenges faced by UAE businesses and how HayyaTax can help navigate them efficiently and stay compliant.
Limited awareness and understanding of Transfer Pricing compliance
Transfer Pricing is still a relatively new concept for many businesses in the UAE. Previously, companies in Free Zones and those benefiting from 0% corporate tax were not concerned with Transfer Pricing regulations. However, with the implementation of UAE Corporate Tax, all businesses entering into the related party transaction must now comply with Transfer Pricing rules, even if they operate in a Free Zone or mainland.
Many business owners and finance teams:
- Are unaware that Transfer Pricing regulations apply to their intra-group transactions.
- Do not fully understand what constitutes a related-party transaction.
- Struggle to interpret OECD-aligned Transfer Pricing rules, especially regarding documentation and testing arm’s length principle.
Transger Pricing Compliance in UAE with OECD Guidelines
The UAE has aligned its Transfer Pricing framework with OECD guidelines, requiring businesses to maintain three-tiered documentation:
- Local File – Contains details of the entity’s intercompany transactions, including Transfer Pricing policies and financials.
- Master File – Covers the multinational group’s global transfer pricing approach.
- Country-by-Country Reporting (CbCR) – Mandatory for MNEs exceeding AED 3.15 billion or Euro 750 million in consolidated revenue.
Additional UAE-Specific Requirements
Unlike many other jurisdictions, the UAE requires businesses to justify the arm’s length nature of all intercompany transactions regardless of transaction volume. Further, once the specified thresholds are met, disclosure of related-party transactions becomes mandatory. Businesses operating in the UAE must also comply with the following:
- Transfer Pricing Disclosure Form – Must be submitted along with the Corporate Tax (CT) return once the specified thresholds are met. This form requires businesses to disclose the nature and value of all intercompany transactions, ensuring transparency and compliance with UAE tax regulations.
- Benchmarking Report – A detailed analysis testing the Arm’s Length Principle (ALP) for all related-party transactions irrespective of the thresholds, ensuring that they adhere to arm’s length principle.
- Connected Persons Report – Required to verify that salaries paid to employees and business owners meeting the Connected Persons definition adhere to arm’s length principle.
Difficulty in Preparing Transfer Pricing Documentation
Preparing robust Transfer Pricing documentation is essential to avoid tax penalties and disputes. However, UAE businesses often struggle with:
- Data Collection – Gathering the right financial, operational, and industry data.
- Justifying Pricing Policies – Explaining why intercompany transactions are at arm’s length.
- Consistency Issues – Ensuring coherence between Local File, Master File, and financial statements.
Furthermore, UAE Free Zone companies must prove their eligibility for the 0% corporate tax rate, making accurate Transfer Pricing documentation even more important.
Benchmarking Challenges
Benchmarking studies are a core component of Transfer Pricing compliance in UAE, ensuring that intra-group transactions align with arm’s length principle. However, UAE businesses often face:
- Limited availability of financial data – Many private companies in the UAE do not disclose financial information, making it hard to find comparable companies.
- Industry-specific variations – Some industries (e.g., logistics, real estate, and digital services) require customized benchmarking approaches.
- Regional Adjustments – Given the unique market conditions in the UAE, global comparable companies often require adjustments to reflect regional economic factors.
Risk of Tax Audits and Penalties
With the introduction of Corporate Tax and Transfer Pricing regulations, the UAE Federal Tax Authority (FTA) has significantly increased its focus on related-party transactions. Businesses that fail to comply with these new requirements risk facing serious consequences, including:
- Substantial Tax Penalties: Inaccurate or incomplete Transfer Pricing documentation can lead to hefty fines, affecting your bottom line.
- Reassessment of Taxable Income: Failure to align with Transfer Pricing guidelines may result in the FTA reassessing your taxable income, leading to unexpected tax liabilities.
- Increased Audit Risk: Companies not adhering to compliance standards are more likely to be selected for audits, which could incur additional costs for legal support and resources.
Businesses engaged in significant intra-group transactions, intercompany financing, intangibles, or operations in Free Zones are especially vulnerable to these risks. As the FTA ramps up enforcement, ensuring proper documentation and adherence to Transfer Pricing rules has become more crucial than ever.
Managing Transfer Pricing in Free Zones vs. Mainland Companies
Many businesses operate in UAE Free Zones, benefiting from 0% corporate tax. However, they must still prove that their intercompany transactions align with Transfer Pricing rules. Common challenges include:
- Proving the arm’s length nature of related-party transactions between Free Zone and Mainland entities.
- Ensuring compliance with both Free Zone regulations and UAE Corporate Tax rules.
- Understanding if they qualify for Free Zone tax incentives under Transfer Pricing scrutiny.
How We Can Help
Our team of Transfer Pricing specialists provides tailored solutions to help businesses comply with UAE Transfer Pricing regulations while optimizing tax efficiency. We offer:
- Transfer Pricing Compliance Assessment – Identifying your Transfer Pricing reporting and documentation obligations.
- Preparation of Benchmarking Reports – Ensuring intercompany transactions align with market standards.
- Connected Persons Report Assistance – Justifying salary structures for owners and executives.
- Transfer Pricing Disclosure Form Filing – Assisting in accurate completion and submission of Transfer Pricing disclosures with your Corporate Tax return.
- End-to-End Documentation Support – Preparing Local Files, Master Files, and Transfer Pricing reports in line with FTA requirements.
By partnering with us, your business can ensure seamless compliance, mitigate risks, and focus on growth without regulatory concerns.
Conclusion
Transfer Pricing compliance in UAE is no longer optional for businesses operating in the UAE and GCC. With tax authorities increasing enforcement, companies must proactively address Transfer Pricing risks to avoid penalties and ensure smooth business operations. By working with experienced tax consultants, businesses can ensure compliance while optimizing their tax position.
Why Choose Us as Your Transfer Pricing Consultant?
At HayyaTax, we specialize in helping businesses navigate complex Transfer Pricing regulations with ease. Our expert tax consultants provide:
- UAE-Specific Expertise – Deep knowledge of FTA compliance requirements.
- Industry-Specific Transfer Pricing Strategies – Tailored solutions for MNCs, SMEs, Free Zones, and family-owned businesses.
- End-to-End Transfer Pricing Support – From documentation to audit defense, we manage every aspect of Transfer Pricing compliance.
- Proactive & Cost-Effective Solutions – Ensuring full compliance while minimizing the cost and effort required.
Stay ahead of UAE Transfer Pricing regulations—partner with our expert team today!