Reviewed and updated by the Farahat & Co. tax team on October 2026. Thresholds, penalties and the AED 40 million counting rule checked against Federal Decree-Law No. 47 of 2022, Ministerial Decision No. 97 of 2023, Cabinet Decision No. 129 of 2025 and FTA clarification CTP011.
Every UAE company that deals with a related party must price that deal at arm’s length, whatever its size. What changes with size is what you must disclose and document. This guide covers each obligation, how the thresholds are counted, how tax groups and free zones are treated, and the problems our tax team sees most often.
What Transfer Pricing Means for a UAE Company
Transfer pricing is the price a company charges, or pays, when it deals with a related business: a parent selling goods to its UAE subsidiary, a UAE company lending money to a sister company, a group charging a management fee, or a UAE entity paying a royalty to an overseas affiliate.
Under Federal Decree-Law No. 47 of 2022 (the Corporate Tax Law), these prices must be at arm’s length: the price independent businesses would agree in the same situation. If they are not, the Federal Tax Authority (FTA) can adjust your taxable income to the arm’s length figure and charge the extra Corporate Tax, plus penalties.
Two separate questions decide what you must do:
- Pricing: the arm’s length rule applies to every related-party transaction, whatever its size.
- Reporting and documents: the Disclosure Form, Local File, Master File and Country-by-Country Report apply only above set thresholds.
Most mistakes come from mixing these two up.
Which UAE Transfer Pricing Obligations Apply to Your Company
| Your situation | What you must do |
|---|---|
| Any transaction with a related party | Price it at arm’s length and keep evidence of how the price was set |
| Related-party transactions above AED 40 million in total in the tax period | Complete the Transfer Pricing Disclosure Form with the Corporate Tax return, disclosing each category above AED 4 million |
| Payments or benefits to a connected person (with its related parties) above AED 500,000 | Disclose them in the connected persons part of the Disclosure Form |
| Your own revenue is AED 200 million or more, or your multinational group’s revenue is AED 3.15 billion or more | Prepare a Local File and a Master File and provide them within 30 days of an FTA request |
| You are the UAE parent of a multinational group with revenue of AED 3.15 billion or more | File a Country-by-Country Report |
| You made a downward transfer pricing adjustment | Disclose it in the return, whatever the amount |
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
Who Counts as a Related Party Under UAE Corporate Tax Law
Article 35 of the Corporate Tax Law treats a person as your related party where:
- One holds 50% or more of the other, directly or indirectly, or controls it
- A third person holds 50% or more of both, or controls both
- Two individuals are relatives up to the fourth degree, including by marriage
- An individual and their relatives together hold 50% or more of a company, or control it
- A company and its permanent establishment or foreign branch
- Partners in the same unincorporated partnership
Control includes the power to appoint 50% or more of the board, so a company can be a related party even with a smaller shareholding.
This catches arrangements that family businesses rarely think of as “group” transactions: a shareholder lending to the company, two sister companies owned by the same family, or a company renting property from its owner.
Connected Persons: Owners, Directors and Officers
Directors and officers are not related parties by default. They are connected persons under Article 36, together with owners holding 50% or more and the related parties of these people.
The rule is simple: a payment or benefit to a connected person, such as a director’s salary, a bonus or rent paid to a shareholder, is deductible only up to its market value. Where payments to a connected person and its related parties exceed AED 500,000 in the tax period, they are disclosed in the return.
When a UAE Company Must File the Transfer Pricing Disclosure Form
The Transfer Pricing Disclosure Form is part of the Corporate Tax return. It is not required for every company with related-party transactions.
It applies where your related-party transactions in the tax period exceed AED 40 million in total. You then disclose each transaction category above AED 4 million: goods, services, intellectual property, interest, assets, liabilities and others. Separately, payments to a connected person above AED 500,000 are disclosed.
Since FTA Public Clarification CTP011 (July 2026), the return also asks whether you made a downward transfer pricing adjustment, regardless of the AED 40 million threshold.
Below the thresholds, you file nothing extra. The arm’s length rule still applies, and the FTA can still test your prices in an audit.
How the AED 40 million is counted
All related-party transactions in the tax period are added together. Sales and purchases both count, and so do loans, fees, royalties and recharges. Each transaction category above AED 4 million is then disclosed on its own.
A Corporate Tax group is treated as a single taxable person, so transactions between members of the same tax group are left out of the count.
Example. A Dubai company sells AED 25 million of goods to a related distributor in Oman and pays its foreign parent AED 18 million in management fees. It also buys AED 30 million of stock from a UAE sister company in the same tax group. The count is AED 43 million (25 + 18), so the Disclosure Form is required. The AED 30 million from the sister company is left out.
When a UAE Company Needs a Local File and Master File
Under Ministerial Decision No. 97 of 2023, a Local File and Master File are required only if one of these applies:
- Your company’s own revenue in the tax period is AED 200 million or more
- You are part of a multinational group with consolidated revenue of AED 3.15 billion or more
They are not filed with the return. You keep them ready and provide them within 30 days of an FTA request. Thirty days is not enough time to build a Local File from scratch, so it should exist when you file the return.
The Local File covers your UAE company: what it does, the risks it carries, each material related-party transaction, the method used and a benchmarking study. The Master File describes the group as a whole: structure, business lines, intangibles, financing and transfer pricing policies. A group can usually supply one Master File for all countries. Our guide to transfer pricing documentation explains what each file contains.
What companies usually can’t produce when the FTA asks
Our tax team sees the same three gaps again and again when the FTA requests transfer pricing support:
- A benchmarking report. The company says its prices are at arm’s length but has no study of comparable companies to prove it.
- A detailed group chart. Not just a list of entities, but who owns what, in what percentage, and who controls each company.
- Records for intangible assets. Who owns the brand, software or know-how, who paid to develop it, and who earns from it.
Country-by-Country Reporting in the UAE
A Country-by-Country Report is required where the ultimate parent entity of a multinational group is resident in the UAE and the group’s consolidated revenue is AED 3.15 billion or more. The rules sit in Cabinet Resolution No. 44 of 2020. The report shows revenue, profit, tax paid, employees and assets by country, and is due within 12 months of the end of the reporting year.
How Tax Groups Change Transfer Pricing
Transactions between members of the same Corporate Tax group are eliminated when the group’s taxable income is calculated. They are not tested or disclosed as related-party transactions within the group.
Dealings between a group member and a related party outside the group, including foreign affiliates and family-owned companies that are not in the tax group, remain fully within the transfer pricing rules.
Transfer Pricing and the Free Zone 0% Rate
For a Qualifying Free Zone Person, transfer pricing is a condition of the 0% rate, not just a compliance task. One of the QFZP conditions is compliance with the arm’s length rule and the documentation requirements.
A QFZP that fails a condition loses its status for that tax period and the following four. A mainland company with a pricing error pays tax on the adjustment. A free zone company that loses QFZP status is taxed at the standard Corporate Tax rates for five tax periods, on all its income. Free zone distributors buying from a foreign parent, and free zone companies paying group management fees, should treat their pricing as a priority.
Three Practical Examples
Example 1: A family trading company below every threshold
A Dubai trading LLC has revenue of AED 25 million. It buys AED 8 million of goods from a sister company owned by the same family and lends AED 3 million interest-free to another family company.
Related-party transactions total AED 11 million, below AED 40 million, so no Disclosure Form is required. Revenue is below AED 200 million, so no Local File. But both transactions must still be at arm’s length. The interest-free loan is the risk: the FTA can add the interest an independent lender would have charged to the company’s taxable income.
Example 2: A free zone distributor
A free zone company with revenue of AED 150 million buys AED 60 million of goods from its foreign parent and pays the parent a management fee of AED 5 million.
Related-party transactions exceed AED 40 million, so it files the Disclosure Form, and both categories (goods and services) exceed AED 4 million, so both are disclosed. A Local File is only required if the group’s revenue is AED 3.15 billion or more. Either way, as a QFZP it needs evidence that the purchase price and the fee are at arm’s length, because its 0% rate depends on it.
Example 3: A director’s salary
A company pays its managing director, who is not a shareholder, AED 900,000 a year. He is a connected person, and the payment exceeds AED 500,000, so it is disclosed. It is deductible only to the extent it reflects market value for the role.
Transactions the FTA Looks at Most Closely
- Management fees and recharges: challenged where the services cannot be identified, there is no benefit to the UAE company, or the fee has no basis
- Loans between related companies and shareholders: interest-free or below-market loans from a UAE company to related parties
- Royalties for brands, software or know-how paid to overseas affiliates
- Purchases and sales within the group where profit shifts towards a lower-tax entity
- Payments to owners and directors above market value
Where Transfer Pricing Goes Wrong: Notes from the Farahat Tax Team
These are the six problems our team meets most often in UAE companies, in the order they come up.
- Identifying related parties and connected persons. Relationships through common ownership, family members or control are missed, so transactions are left off the form.
- Splitting the work inside a group. When several group companies work on the same task or client, it is hard to show what each one did and contributed.
- Knowing where the arm’s length test applies. Deciding which charges need an arm’s length price, and when a mark-up should or should not be added.
- Classifying the service. A functional analysis of functions, assets and risks shows if a service is low or high value-adding. That decides the profit the service company should earn.
- Finding comparables. Reliable data on similar independent companies in the region is limited, so benchmarking takes time.
- Choosing the right method. The wrong method weakens the whole analysis. The five methods are below.
How the Arm’s Length Price Is Tested
The Corporate Tax Law recognises five methods. The right one depends on the transaction and the data available.
| Method | Compares | Typical use |
|---|---|---|
| Comparable Uncontrolled Price (CUP) | The price with the price between independent parties | Loans, commodities, standard goods |
| Resale Price | The reseller’s gross margin | Distributors buying from a related supplier |
| Cost Plus | The mark-up on cost | Group services, contract manufacturing |
| Transactional Net Margin (TNMM) | The net profit margin with comparable companies | Most distribution and service cases |
| Profit Split | How combined profit is shared | Highly integrated operations, unique intangibles |
Another method can be used if none of these gives a reliable result, but you must be able to explain why. The FTA Transfer Pricing Guide sets out how the FTA applies each method.
Not sure whether your group transactions cross the disclosure threshold? Our corporate tax team can review them before you file.
Downward Transfer Pricing Adjustments After CTP011
Public Clarification CTP011, issued in July 2026, confirms that a company can reduce its taxable income through a downward transfer pricing adjustment in its return without FTA pre-approval. The adjustment must be disclosed whatever its amount, and the FTA can review it in an audit.
To support it, keep the reason for the adjustment, the arm’s length analysis, a reconciliation between the accounts and the adjusted figures, and evidence that the related party made the matching adjustment on its side.
Year-end adjustments are easiest to support when they are booked before the books close, in both companies.
Penalties for Transfer Pricing Failures in the UAE
The amounts below reflect the penalty table as amended by Cabinet Decision No. 129 of 2025.
- Adjustment to taxable income: extra Corporate Tax on the difference between your price and the arm’s length price, plus late payment penalties from the original due date
- Late or missing return, including the Disclosure Form: AED 500 per month for the first 12 months, then AED 1,000 per month
- Records not kept or not provided, including the Local File and Master File: AED 10,000 per violation, AED 20,000 for a repeat within 24 months
- Free zone companies: loss of the 0% rate for five tax periods
Transfer pricing figures also flow into your audited financial statements and Corporate Tax return. Related-party balances that do not match on both sides are one of the most common audit queries.
Frequently Asked Questions (FAQs)
Do all UAE companies with related-party transactions need to file the Transfer Pricing Disclosure Form?
Do purchases and sales both count towards the AED 40 million?
When is a Local File required in the UAE?
Does transfer pricing apply to small businesses in the UAE?
Is a director's salary a transfer pricing issue?
Do transactions within a UAE tax group need transfer pricing documentation?
Can a free zone company lose its 0% rate because of transfer pricing?
Who must file a Country-by-Country Report in the UAE?
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
Transfer Pricing Support from Farahat & Co.
Our tax team reviews related-party transactions, prepares the Transfer Pricing Disclosure Form, builds Local Files and benchmarking studies, prices intercompany loans and management fees, and reviews QFZP transfer pricing compliance.
Contact our tax team to review your transfer pricing position before your next Corporate Tax return.
