Since UAE Corporate Tax took effect for financial years starting on or after 1 June 2023, the Federal Tax Authority (FTA) expects every business with related party dealings to justify its prices in writing. Many founders with a free zone company, a mainland company and perhaps a holding abroad are caught by these rules without realising it.
This guide explains the essentials in plain language, so founders and finance teams can stay clear of adjustments, penalties and long audits.
What Transfer Pricing Really Means
Transfer pricing is the price one group company charges another. Think of a Dubai free zone entity invoicing management fees to a sister company in Europe, or a holding company lending money to its subsidiary.
Tax authorities test these prices against the arm's length principle: would two unrelated businesses have agreed the same price under the same conditions? The OECD Transfer Pricing Guidelines (2022) are the global reference for this test.
In the UAE, the rules sit in Articles 34 to 36 and 55 of the Corporate Tax Law. The FTA's own Transfer Pricing Guide (CTGTP1), issued on 23 October 2023, is the first point of reference, with the OECD Guidelines filling any gaps. The rules cover cross border deals and domestic ones too, for example between a free zone company and a mainland company. If your group needs a cleaner structure, 1Stop Connect Holdings & Trusts can help.
Which Transactions Count, and How to Price Them
Every cross border shipment within a group needs a defensible price · Photo: Wolfgang Weiser / Unsplash
Typical related party transactions include sale of goods, intra group services and management fees, loans and guarantees, and royalties for brands, software or know how. The UAE accepts the five OECD methods. You choose the one that fits the facts best and record why.
| Method | Best used for | Complexity |
|---|---|---|
| Comparable Uncontrolled Price (CUP) | Commodities, loans, items with clear market prices | Low |
| Resale Price | Distributors buying and reselling without adding much value | Low |
| Cost Plus | Routine services, contract manufacturing | Low |
| Transactional Net Margin (TNMM) | Most service and distribution companies; the most common method | Medium |
| Profit Split | Highly integrated operations where both sides add unique value | High |
Sources: UAE Corporate Tax Law Article 34; Chambers Transfer Pricing 2026: UAE.
Documentation: What the FTA Expects
Contemporaneous files beat last minute paperwork · Photo: Lukas Blazek / Unsplash
Good documentation is your best defence. Ministerial Decision No. 97 of 2023 sets out who must keep what.
| Document | Who needs it | When |
|---|---|---|
| TP Disclosure Form | Businesses with related party transactions above the threshold; categories above AED 4 million are listed (KPMG) | With the tax return |
| Master File and Local File | Entity revenue of AED 200 million or more, or group revenue of AED 3.15 billion or more | On FTA request |
| Country by Country Report | Groups with consolidated revenue of AED 3.15 billion (EUR 750 million) or more | Annually |
| Supporting evidence | Everyone: contracts, invoices, cost bases, benchmarks | Kept at least 7 years |
Free zone companies should pay extra attention. Their 0% rate depends on arm's length dealings with related parties, as Gulf News explains. The 1Stop Connect Accounting, VAT & Corporate Tax team prepares and files these for clients every year.
Five Mistakes That Attract Tax Authority Attention
Small gaps in records become big audit questions · Photo: Marten Bjork / Unsplash
No written intercompany agreements. Invoices without contracts look like profit shifting.
Round number management fees. A flat AED 500,000 with no cost basis is hard to defend.
Interest free loans between group companies. Lenders at arm's length charge interest.
Persistent losses in one entity. Independent companies do not accept losses year after year.
Documents prepared only when the auditor calls. The FTA expects files prepared at the time of the transaction, as PwC notes in its review of the guide.
Also note: adjustments that reduce your taxable income need FTA approval first, and the general anti abuse rule lets the FTA disregard arrangements made mainly to save tax. For a deeper technical read, see the Deloitte overview, the BDO summary and the UAE Ministry of Finance Corporate Tax FAQ.
"Transfer pricing is not only for multinationals. Any founder with two or more companies should get it right from day one. A clean agreement and a short benchmark today cost far less than an adjustment tomorrow."
Dr. Dieter Hovorka, PhDYour Beginner Checklist
1. Map every company in your group and every transaction between them.
2. Sign intercompany agreements for services, loans and licences.
3. Choose a pricing method and record why it fits.
4. Benchmark your margins against independent companies once a year.
5. Check whether you exceed the disclosure, Master File or Local File thresholds.
6. Keep all records for at least 7 years.
At 1Stop Connect we help clients choose the right business setup and keep it compliant year after year. Get in touch for a confidential review of your group.
This article is general information and not tax or legal advice.