UAE Transfer Pricing Documentation Requirements and Rules

The United Arab Emirates (UAE) has significantly enhanced its tax framework in recent years to align with global tax standards. One major development is the introduction of Transfer Pricing (TP) regulations under the UAE Corporate Tax Law. These rules ensure that transactions between related parties adhere to the arm’s length principle to prevent tax base erosion and profit shifting. Understanding the UAE Transfer Pricing Documentation Requirements is essential for businesses operating in the region to maintain compliance and avoid penalties.

Key Elements of UAE Transfer Pricing Regulations

The UAE Transfer Pricing framework draws from the Organization for Economic Co-operation and Development (OECD) guidelines. The regulations are structured to ensure fair market practices in related-party transactions.

1. Arm’s Length Principle

The UAE mandates that all transactions between related parties or connected persons must be conducted at arm’s length. This means that the conditions applied in these transactions should mirror those that would occur between unrelated entities in similar circumstances.

2. Related Parties and Connected Persons

The UAE Transfer Pricing rules define related parties and connected persons broadly to include:

• Individuals related through blood or marriage
• Corporate entities under common control
• Partners in joint ventures or partnerships

3. Transfer Pricing Methods

Taxpayers must apply one of the six OECD-recognized Transfer Pricing methods:

• Comparable Uncontrolled Price (CUP) method
• Resale Price Method (RPM)
• Cost Plus Method (CPM)
• Transactional Net Margin Method (TNMM)
• Profit Split Method (PSM)
• Any other method

Documentation Requirements Under UAE Transfer Pricing Regulations

Article 55 of the UAE Corporate Tax Law outlines the transfer pricing documentation requirements for businesses engaged in transactions with Related Parties and Connected Persons.

The UAE has adopted a three-tiered documentation approach in line with OECD BEPS Action 13 recommendations. This standardised structure involves preparing three documents: the Master File, the Local File, and the CbC Report. Each serves distinct yet complementary purposes in providing evidence of compliance with transfer pricing regulations.

1. Master File

The Master File provides an overview of the MNE Group’s global business operations and transfer pricing policies. It is required for either:

1. Taxable Persons that are Constituent Companies of an MNE Group with consolidated revenue of AED 3.15 billion or more or
2. Taxable Persons (UAE) with AED 200 million or more revenue in the relevant tax period.

Key components:

It provides a high-level overview of the Group’s business and the allocation of income and economic activity within a Group.

The information required in a Master File provides a “blueprint” of the MNE Group and contains relevant information that can be broken down into the following five categories:

• The MNE Group’s organisational structure;
•  A description of the MNE Group’s business(es);
• The MNE Group’s intangibles (as defined in Chapter VI of the OECD Transfer Pricing Guidelines);
• The MNE Group’s intercompany financial activities; and
• The MNE Group’s financial and tax positions.

A Master File is required to be prepared for each Tax Period based on the specific facts and circumstances of the MNE Group’s global business for that particular Fiscal Yea

2.The Local File

The Local File contains detailed information on related party transactions specific to the UAE entity. The threshold is same as per master file.

Required details:

It provides detailed information on operations of the local entity and analysis and testing of the outcomes of the Controlled Transactions against the Arm’s Length Principle.

• Entity-specific information: Management structure, local business strategy, key competitors.
• Transaction information: Type, value, and parties involved in each type of transaction.
• Functional analysis: Activities carried out, resources used, and risks taken.
• Transfer pricing methodology – Justification for the selected method with supporting economic analysis.
• Financial information – Local entity financial statements and allocation schedules.

3. Country-by-Country Report (CbCR)

The CbCR applies to UAE-headquartered MNE Groups with consolidated revenue of AED 3.15 billion or more.

The report includes:

It provides jurisdictional quantitative information about an MNE Group (above AED 3,150,000,000) as well as an overview of the different activities conducted by affiliates of an MNE Group.

Specifically, a CbCR includes the following three tables:

• Table 1 – Contains the quantitative information per tax jurisdiction such as unrelated party and related party revenues, stated capital, taxes accrued and paid, employee count, etc.
•  Table 2 – Contains the qualitative information per Constituent Company on the main business activities undertaken during the year.
• Table 3 – Contains additional information necessary to facilitate the understanding of Tables 1 and 2 (for example, assumptions on exchange rates, source of data, etc.)

In short it must include Jurisdiction-wide data such as Revenue, profit/loss, income tax paid, capital, and number of employees, Entity details such as Primary business activities of all constituent entities and additional information & Explanations necessary to interpret the data.

Documentation Standards and Requirements

The UAE has established clear thresholds for transfer pricing documentation requirements:

Penalties for Non-Compliance

Failure to comply with transfer pricing documentation requirements can result in significant penalties. Non-compliance may also lead to comprehensive tax audits, transfer pricing adjustments, and double taxation issues.

Conclusion

In the UAE, transfer pricing documentation has become a strategic business imperative rather than an ordinary compliance requirement. A well-prepared documentation framework ensures compliance with UAE tax law and helps the company defend its transfer pricing practices during an audit. Unlike taking a reactive stance and dealing with significant transfer pricing adjustments, businesses operating in the UAE can avoid tax risk and disputes with authorities and improve overall business performance by maintaining robust transfer pricing documentation and performing accurate & timely compliance.