Mastering Transfer Pricing in the UAE: Strategies, Compliance & 2025 Outlook
Introduction:
The UAE has taken bold strides in aligning with global tax standards, with Transfer Pricing (TP) now a central pillar of corporate tax compliance. As businesses gear up for a more regulated tax environment, understanding and implementing TP strategies is critical not just for compliance, but for risk mitigation and long-term growth. Whether you’re a multinational enterprise (MNE) or a local entity with cross-border transactions, here’s your complete guide to navigating Transfer Pricing in the UAE.
1. What is Transfer Pricing and Why It Matters in the UAE?
Transfer Pricing refers to the rules and methods for pricing transactions between related parties, such as subsidiaries or group companies. In the UAE, TP gained legal traction with the introduction of the Corporate Tax Law (Federal Decree-Law No. 47 of 2022), echoing the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan, especially Action 13.
Why it matters:
- Prevents profit shifting and double taxation
- Enhances investor confidence
- Ensures alignment with international tax standards
2. Regulatory Framework You Need to Know
The UAE TP framework draws from multiple sources:
- OECD Guidelines
- BEPS Action 13 (Master File, Local File, CbCR)
- FTA (Federal Tax Authority) TP Guide (Oct 2023)
- Economic Substance Regulations (ESR)
Entities must demonstrate the Arm’s Length Principle — that intra-group transactions are priced as if they were between independent parties.
3. Who is Affected?
TP regulations apply to a wide spectrum of businesses:
- Multinational enterprises (MNEs)
- Free zone companies
- Holding companies
- UAE-based SMEs engaged in cross-border or related-party transactions
Key thresholds:
- Consolidated group revenue of AED 3.15 billion (for CbCR)
- Local transactions with related parties above FTA-stipulated thresholds
4. Transfer Pricing Documentation Requirements
To remain compliant, businesses need to maintain:
- Master File: High-level group information (strategy, structure, IP, etc.)
- Local File: Detailed info about UAE-specific related party transactions
- Country-by-Country Report (CbCR): Aggregated financial data by jurisdiction
FTA Tip: Documentation should be readily available upon request. Non-compliance may attract penalties.
5. Accepted Transfer Pricing Methods in the UAE
| Method | Use Case | Pros | Cons | UAE Relevance |
| Comparable Uncontrolled Price (CUP) | Commodity/standard transactions | Closest to market reality | Needs strong comparable | High |
| Resale Price Method | Distributors | Clear margin structure | May ignore value-added services | Medium |
| Cost Plus Method | Manufacturing/service providers | Transparent cost allocation | Margin assumptions can vary | High |
| Transactional Net Margin Method (TNMM) | Service entities | Flexible, widely accepted | Comparability issues | Very High |
| Profit Split Method | Integrated operations/IP sharing | Captures group synergies | Complex to apply | Moderate |
6. Free Zones & Transfer Pricing: What You Should Know
There’s a common misconception that Free Zone entities are exempt. While they may enjoy 0% corporate tax, TP rules still apply if there are related-party transactions or dealings with the mainland or overseas entities. Ensure you:
- Identify all related parties
- Maintain documentation
- Apply Arm’s Length pricing even within the zone
7. TP Risk Management and Audit Preparedness
With the FTA ramping up enforcement, businesses must be audit-ready. Best practices include:
- Conducting a functional analysis annually
- Performing benchmarking studies using regional comparables
- Using internal vs external comparable
- Developing a TP risk assessment matrix
FAQs on UAE Transfer Pricing
Is the OECD model mandatory in the UAE?
No, but the FTA aligns with it closely, so following OECD TP guidelines is highly recommended
When is a CbCR required?
If your group’s consolidated revenue exceeds AED 3.15 billion.
Do Free Zone entities have to prepare a Local File?
Yes, if they conduct related-party transactions.
9. Practical Checklist for UAE TP Compliance
10. What’s Next in 2025? Transfer Pricing Trends to Watch
- Enhanced data-sharing between jurisdictions
- More FTA audits targeting service-based entities
- Tech-enabled TP enforcement (AI audit tools)
- Increasing scrutiny on intangible asset transfers
- Sector focus: fintech, healthcare, logistics
Conclusion: Get Ahead, Stay Compliant
The TP landscape in the UAE is evolving rapidly. Businesses that invest early in strong documentation, proactive risk management, and staying aligned with global standards will not only avoid penalties—but also win investor confidence and long-term growth.
Want help creating your Local File, benchmarking analysis, or audit-readiness package? Let’s talk.
