Transfer Pricing Rules for UAE Subsidiaries of Indian Companies 

As more and more Indian businesses are establishing their operations in the UAE, cross-border transactions between the Indian parent company and their UAE subsidiary have become quite common. While these transactions do offer a certain level of operational flexibility and tax efficiency, they also tend to attract even stricter scrutiny from tax authorities in both the jurisdictions.

One of the most important areas a business needs to get familiar with is transfer pricing. With the introduction of the related party transaction under the UAE corporate tax regime, transfer pricing has become one of the most essential areas of compliance. Both UAE and India now require robust transfer pricing documentation, including a local file, master file and, in some cases, country‑by‑country reporting (CbCR) for large groups. Taxpayers must maintain contemporaneous documentation that supports their method selection, benchmarking analysis and intercompany agreements, ready for submission during audits. Non‑compliance can lead to income adjustments, double taxation, interest and heavy penalties, making proactive transfer pricing planning and documentation a strategic priority.​ In this guide, we’ll explain how UAE transfer pricing rules work, when they apply, what documentation is required, and how Indian businesses can prepare.

What Is Transfer Pricing, and Why Does It Matter for an Indian-UAE Group?

Transfer pricing, in simple terms, refers to the price charged for a transaction between two related entities. Where companies are under common control, that price may not always reflect genuine market conditions, unlike a transaction between independent businesses negotiating at arm’s length. Hypothetically, an Indian Parent company can overcharge or undercharge its UAE subsidiary to shift profits into whichever jurisdiction offers a lower rate.

Tax authorities in both India and the UAE care about this because it directly affects how much taxable profit shows up in their respective countries. The OECD Guidelines hold that a value is at arm’s length if it equals the price that two unrelated parties would agree to in the open market, without either side influencing the other. Since the UAE introduced Corporate Tax in June 2023, this principle has become a hard legal requirement rather than a best practice, and Indian-owned groups operating UAE entities are squarely within its scope.

The UAE introduced transfer pricing rules under the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporation and Businesses. These rules apply to tax periods starting on or after 1 June 2023..

Which Transactions Between an Indian Parent and Its UAE Subsidiary Are Covered?

The scope is broad; it applies to a wide range of transactions that involve the transfer of value between related entities:

• Sale or purchase of goods (e.g., an Indian manufacturer shipping inventory to its UAE distribution arm)
• Provision of services, including shared corporate functions like HR, IT, accounting, and management support
• Licensing or use of intangibles like brand names, software, patents, trademarks
• Intercompany loans, advances, and guarantees, including the interest rate charged
• Cost-sharing or cost-allocation arrangements within the group
• Payments to directors, shareholders, or key management personnel

The UAE Corporate Tax Law requires both cross-border and purely domestic transactions and arrangements between related parties to adhere to the arm’s-length standard. This includes those transactions and arrangements by Free Zone entities. So even if your UAE subsidiary only deals with another UAE group entity, the rule still applies; it isn’t limited to transactions crossing back to India.

Who Counts as a “Related Party” or “Connected Person” Under UAE Law?

The UAE law draws a distinction between two categories, and they’re treated somewhat differently.

Related parties generally cover entities or individuals connected through ownership, control, or kinship. This includes two or more natural persons related up to the fourth degree of kinship, and a natural person and a juridical person related through ownership of 50% or greater, or through control. An Indian parent holding a majority stake in its UAE subsidiary clearly falls into this bucket, as would sister companies under common Indian ownership.

Connected person, however, is a narrower, related concept aimed at individuals with influence over the business. It’s a natural person who directly or indirectly owns an ownership interest in, or controls, the taxable person, typically owners, directors, and their relatives. For UAE family offices and family-owned conglomerates, this connected-persons category is a particular point of FTA focus.

But what is the difference between the two? Related-party transactions require a full arm’s length analysis using one of the approved pricing methods, while connected persons are tested against a rather simpler market-value standard but the underlying logic, pay what an independent party would pay, is the same either way.

What Is the Arm’s Length Principle and How Is It Tested?

The core idea of the arm’s length principle is that the price your UAE subsidiary pays its Indian parent (or vice versa) for goods, services, or financing should be the similarly priced to what two unrelated companies would have agreed to under comparable circumstances. If your Indian parent company sells goods to your UAE subsidiary, the price must be comparable to what an unrelated supplier would charge an independent buyer in a comparable transaction.

The UAE Corporate Tax Law prescribes six methods to test this, broadly aligned with the Organization for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. These typically include:

• Comparable Uncontrolled Price: The CUP method compares the price charged in a related-party transaction to the price charged for the same or a similar product/service in a comparable transaction between unrelated parties. The CUP method is typically the most widely used Transfer Pricing method for establishing the Arm’s Length Price for the transfer of commodities between Related Parties or Connected Persons.
• Resale Price method: The RPM is based on the price at which a product, that has been purchased from a Related Party, is resold to an independent party. The resale price would be reduced by the gross “Resale Price Margin”, as well as any other costs associated with the transaction, to provide an Arm’s Length Price for the original transaction between the Related Parties or Connected Persons. It is commonly used for distributors who buy from a related supplier and resell without significant alteration.
• Cost Plus method: The CPM considers the direct and indirect costs incurred by a supplier in supplying goods or services in a Controlled Transaction and applies an appropriate mark-up to these costs based on the functions performed by the supplier and the profit that would have been earned from an arm’s length transaction depending on the market conditions. Typically used for manufacturers, contract producers, or service providers.
• Transactional Net Margin Method: The TNMM compares the net profit margin (relative to costs, sales, or assets) earned in a related-party transaction to the net margin earned by independent companies in comparable transactions. Most widely used method in practice because it’s more tolerant of product differences than CUP.
• Profit Split method: This method is used when both related parties make unique and valuable contributions to a transaction (e.g., shared IP, integrated operations). The combined profits from the transaction are split between the parties based on the relative value of each party’s contribution, functions, and risks.
• Other Transfer Pricing methods : Article 34(4) of the Corporate Tax Law stipulates that the Arm’s Length Price may be calculated using methods other than the five Transfer Pricing methods listed in the Corporate Tax Law, if none of the five recognised methods can be reasonably or reliably applied, and provided these other methods satisfy the Arm’s Length Principle. Where an alternative Transfer Pricing method has been used, adequate supporting documentation explaining the reason(s) for selecting the method including reasonable sufficient economical and commercial rationale, as well as clear disclosures of the underlying empirical analysis performed in applying the method must be provided.

Choosing the most appropriate method requires weighing contractual terms, the characteristics of the transaction, economic circumstances, the functions, assets, and risks of each party, availability of reliable information in respect of uncontrolled comparables, degree of comparability between the Controlled transactions and overall business strategy.

The FTA expects businesses to support their pricing with market evidence, or a benchmarking study. A benchmarking study compares your related party- transactions with similar transactions between independent companies.

Choosing the most appropriate method requires weighing contractual terms, the characteristics of the transaction, economic circumstances, the functions, assets, and risks of each party, and overall business strategy.

The FTA expects businesses to support their pricing with market evidence, or a benchmarking study. A benchmarking study compares your related party- transactions with similar transactions between independent companies.

What Documentation Do UAE subsidiary Need to Maintain for Their transactions with Indian Parent Companies?

Even though the documentation obligations depend on the size of the business, there is no minimum transaction value below which the arm’s length principle stops applying. Transfer pricing in UAE comes with a list of compliance checklist, that entities now have to follow regardless of their annual revenue. Even businesses that qualify for small business relief or corporate tax exemptions, must still price their related-party transactions at arm’s length.

The requirements for transfer pricing documentation for UAE break down into three broad layers:

Transfer Pricing Disclosure Form:

A TPDF is a form that your business is required to submit along with the corporate tax return, within nine months of the end of the relevant tax period. It tells the Federal Tax Authority about the transactions that your business has had with related party and connected party.

A TPDF is required where the total value of your related party transactions exceeds AED 40 million with only categories individually exceeding AED 4,000,000 needing disclosure. The threshold for connected party transactions is AED 500,000 in aggregate and the same disclosure rule for individual category.

Master File and Local File:

Master File and Local File are part of the three-tiered standardised approach to Transfer Pricing documentation prescribed under the OECD Transfer Pricing Guidelines and BEPS Action 13 (together with Country-by-Country Reporting)These are required when the entity is a part of a multinational group with a total consolidate group revenue of AED 3.15 billion or more. Even if the consolidated revenue does not reach the threshold the subsidiaries must prepare the documentation if its own revenue is AED 200 million or more during the relevant tax period.

But what is the difference between a Local File and Master file?

A Master File is a type of Transfer Pricing documentation that provides a high-level overview of the MNE Group’s global business operations, Transfer Pricing policies, information on key value drivers, and a global allocation of income and economic activity. Its purpose is to assist the FTA in evaluating significant Transfer Pricing risks and determining the MNE Group’s Transfer Pricing practices in their global economic, legal, financial, and tax context.

A Local File is a type of Transfer Pricing documentation that provides more detailed information relating to specific Controlled Transactions in the relevant Tax Period. It covers transactions taking place between local country affiliate and associated enterprises, including information on the identity of Related Parties or Connected Persons, relevant financial information regarding those specific transactions, a comparability analysis and the selection and application of the most appropriate Transfer Pricing method. It supplements a Master File and helps to ensure that the Taxable Person has complied with the Arm’s Length Principle in its Transfer Pricing positions affecting a specific jurisdiction.

A Local File focuses on information relevant to the Transfer Pricing analysis related to each specific transaction taking place between the Taxable Person and its Related Parties or Connected Persons in the relevant Tax Period.

Does the UAE Free Zone 0% Tax Rate Survive Transfer Pricing Scrutiny?

This is one of the sharpest risks for Indian parent companies who structure themselves in UAE to access the 0% Qualifying Free Zone Person (QFZP) rate. The benefit comes with a condition. To maintain the QFZP status and the tax exemption that comes with it, the entity must comply with the arm’s length principle under Article 34.

If the FTA determines that the company has failed to comply with the transfer pricing rules, they may lose the tax-free status for that period. A non-compliance may lead to a full 9% tax exposure, loss of free zone exemption and an exposure to FTA audit.

What Happens If You Don’t Comply?

Once the FTA finds a gap in the scrutiny, the consequences are stacked. Here are some possible implications of failure in compliance with the transfer pricing rules:

• Denied deductions: Non-arm’s length related-party payments are denied as tax deductions, and FTA adjustments that raise taxable income get taxed at the 9% rate on the increase.
• Loss of free zone benefits: Your QFZP status can be withdrawn, pushing income to the standard rate.
• Documentation penalties: Fines of up to AED 50,000 apply for incomplete transfer pricing documentation, on top of any FTA adjustment to taxable income.
• Interest and voluntary disclosure penalties: Under the current penalty model, late payments arising from a transfer pricing adjustment attract a 14% annual interest rate calculated monthly, and a voluntary disclosure made after an audit notification triggers a 15% fixed penalty in addition to that interest.

And because the FTA has an authority to review earlier tax periods, a missing Local File or an undocumented director payment from a prior period can resurface years later and lead to substantial tax liabilities

How Should an Indian Parent Coordinate UAE and Indian Transfer Pricing Rules?

An Indian company with a UAE subsidiary has to comply with the transfer pricing rules of both India and UAE at the same time. One country’s compliance does not automatically satisfy the others.

India has had its own detailed transfer pricing regime under section 161 to 173 of the Income Tax Act, 2025. The UAE introduced its own transfer pricing rules under the Corporate Tax regime. The UAE side doesn’t replace the Indian regime- they run in parallel.

This creates two implications for an Indian company with UAE subsidiary:

1. The pricing policy needs to justify scrutiny from both authorities simultaneously. Hypothetically, the Indian parent charges the UAE subsidiary AED 15 million for management services. The Indian Income Tax Department might accept the price because it shifts more margin in India, but this could be exactly the price that the UAE Federal Tax Association might flag as too low for the UAE entity. The comparison with the related party transactions and transactions with independent businesses and its functional analysis should be consistent across both the jurisdictions’ documentations.

2. Double Taxation. This is a real risk if the two authorities, in this case the Indian Income Tax Department and the UAE FTA, reach different conclusions about the same transaction. This situation will then have to be dealt with a Mutual Agreement Procedure (MAP) that is included in the Double Taxation Avoidance Agreement signed between India and the UAE. Through the MAP, the two countries can negotiate a solution, so the same income is not taxed twice. But this is a rather slow and exhausting procedure.

Is There a Way to Get Upfront Certainty on UAE Transfer Pricing?

Yes. Businesses can reduce uncertainty for transfer pricing of UAE subsidiary by obtaining approval from the UAE FTA in advance, instead of waiting to see whether their pricing is challenged during an audit.

The FTA formally rolled out the Advance Pricing Agreements (APA) in December 2025. An APA is an agreement between a taxpayer and the FTA on the arm’s length price that determines how certain related-party transactions will be priced for transfer pricing purposes over a specific future period. As long as the taxpayer follows the agreed terms, the FTA generally won’t challenge the transfer pricing for those covered transactions during the APA periods.

To apply for the APA approval, the aggregate arm’s length value of the transactions covered must be at least AED 100 million per tax period, and there’s a non-refundable application fee of AED 30,000. That revenue threshold applies to the total of a tax group where one exists, rather than to each individual entity separately, which makes qualification somewhat easier for larger structures.

An Indian parent company with a UAE subsidiary that carries out recurring UAE-related transactions, significant IP licensing, large intercompany financing, or major goods flows. A unilateral APA – an agreement between the Indian entity and the UAE FTA -can remove years of audit uncertainties.

It’s worth noting, though, that a UAE unilateral APA only binds the FTA. It isn’t binding on regulators outside the UAE, so if the Indian tax authority disagrees with the position taken in a UAE APA, double taxation could still result, which is where bilateral arrangements, an agreement between the tax authorities of two more countries and the MAP would need to come for a rescue instead.

What Should Indian Companies with UAE Subsidiaries Do Right Now?

Here is a checklist of actions that Indian companies with UAE subsidiaries should take to stay compliant with the UAE’s transfer pricing rules:

1. Map every transaction between the Indian parent and the UAE entity. This can include, goods, services, royalties, loans, guarantees, shared costs and confirm that each transaction has a formal, written intercompany agreement.
2. Run a benchmarking study for significant related party transaction, using recognized comparable databases, and objective market data to satisfy the arm’s length principle.
3. Check your numbers against the documentation thresholds for TPDF and Master and Local file and build documentation before a 30-day FTA request lands.
4. Align the UAE pricing policy with your existing Indian transfer pricing documentation so the functional and economic analysis tells the same story on both sides of the border.
5. Reassess free zone structures specifically if your UAE entity holds QFZP status, treat its transfer pricing as a direct condition of keeping that 0% rate.
6. Consider an APA if your UAE-related party transactions are large and recurring enough to clear the AED 100 million threshold.

Final Thoughts

As the UAE Corporate Tax regulations continue, transfer pricing has shifted from a concern for only large multi-national companies to a core compliance obligation for all the entities operating across borders, regardless of their revenue. Getting intercompany pricings right isn’t easy, apart from avoiding penalties, it is about building an indestructible structure that can withstand scrutiny from both UAE Federal Tax Authorities and Indian Income Tax Department.

Navigating this dual-jurisdiction compliance without the right expertise can be time consuming and prone to errors. Get in touch with Stratrich today to ensure your cross-border transactions are fully compliant and audit-ready.