Understanding the Importance of Transfer Pricing Compliance in the UAE
Transfer pricing documentation in the UAE is no longer optional — it's a critical part of corporate tax compliance, especially for businesses engaged in related-party transactions. But beyond filing documents, businesses need to understand why transfer pricing compliance matters and how it impacts their financial health and audit risk.
What Is Transfer Pricing Compliance?
Transfer pricing compliance refers to the process of ensuring that any transactions between related parties, such as subsidiaries, parent companies, or controlled affiliates, are conducted at arm’s length. In simpler terms, the pricing should be what you would charge an unrelated third party in the open market.
This includes goods, services, royalties, loans, and even intangible assets like IP.
Why It's Critical in the UAE
Since the UAE introduced its Corporate Tax Law on June 1, 2023, businesses with intercompany dealings must comply with OECD-aligned transfer pricing rules. This includes maintaining proper documentation and being able to prove the fairness of their pricing during audits.
Failure to do so can lead to:
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Income adjustments
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Tax penalties
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Denied deductions
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Damage to business credibility
Common Compliance Triggers
Even if your business isn't a multinational giant, you may still fall under transfer pricing obligations if:
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You have related-party transactions exceeding AED 4 million per category
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You pay over AED 500,000 to connected persons
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Your business earns AED 200 million or more in revenue
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You're part of a group with global revenue over AED 3.15 billion
What Does Compliance Involve?
Transfer pricing compliance goes beyond filing a TP Disclosure Form. It also involves:
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Conducting a functional and risk analysis of your intercompany dealings
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Selecting appropriate pricing methods (CUP, TNMM, RPM, etc.)
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Benchmarking against comparable companies or deals
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Preparing contemporaneous documentation including the Master File and Local File
For a step-by-step breakdown of what these documents include and when they’re required, you can check out this full guide on transfer pricing documentation in the UAE.
Final Thoughts
Staying compliant with UAE transfer pricing rules is about being proactive, not reactive. Whether you’re a local firm with international ties or a free zone entity with group-level transactions, building a solid documentation framework now will help avoid penalties and disputes later.
