Transfer Pricing Basics for UAE Companies With Related Parties

Transfer pricing refers to the rules governing how transactions between related parties, such as companies under common ownership or control, are priced for tax purposes. Under the UAE corporate tax framework, transactions between related parties are generally required to be conducted on what is known as an arm's length basis, meaning the pricing should reflect what independent, unrelated parties would agree to under similar circumstances.

This requirement exists to prevent related companies from artificially shifting profits between entities, for instance by overpricing or underpricing goods, services, or financing arrangements exchanged between them, in a way that could reduce overall tax liability. The arm's length principle applies broadly, covering transactions such as the sale of goods, provision of services, licensing of intangible assets, and intercompany financing arrangements.

Businesses engaging in related-party transactions above certain thresholds are generally required to maintain specific transfer pricing documentation, which may include a master file and local file, demonstrating how their related-party pricing complies with the arm's length standard. This documentation requirement exists to allow authorities to review and verify compliance if requested.

Given that transfer pricing rules require careful analysis of comparable transactions and can involve significant documentation obligations, businesses with related-party dealings, particularly multinational groups or UAE free zone companies transacting with related mainland entities, are strongly encouraged to seek specialized transfer pricing advice to ensure their intercompany arrangements are properly structured and documented.