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Few years ago, transfer pricing in the UAE was not something most businesses thought about. There was no corporate tax, no formal transfer pricing regime, and no obligation to price intercompany transactions in any particular way. That has completely changed.
With the introduction of corporate tax by Federal Decree-Law No. 47 of 2022 in June 2023, the UAE has established a complete framework for transfer pricing, which is patterned after OECD transfer pricing rules. The Federal Tax Authority requires companies to be compliant, and the documentation should be available prior to the filing of the tax returns.
Being aware of how the transfer pricing rules in the UAE are similar to the OECD rules is the starting point of staying compliant. If your company is doing business in the UAE and has transactions with related parties or group companies, this is a good place to start.
In developing its transfer pricing framework, the UAE aligned itself with the OECD’s BEPS recommendations. The objective was not only technical compliance but also ensuring that profits are taxed where economic activity actually takes place.
By joining the OECD Inclusive Framework on BEPS on 16 May 2018, the UAE accepted the obligation to apply minimum standards such as BEPS Action 13 documentation and reporting requirements.
When the UAE introduced corporate tax in 2023, it was only natural that the transfer pricing regulations should be based on the OECD transfer pricing guidelines, as a testament to this commitment. This has been clearly articulated in the FTA’s Transfer Pricing Guide, which was released on 23 October 2023.
According to this guide, the UAE transfer pricing regime is generally in line with the 2022 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. In cases where a particular topic is not covered in the UAE guide, one is advised to look at the OECD guidelines.
The arm’s length principle is the central idea in both OECD transfer pricing guidelines and UAE law, and in the UAE, it is applied more broadly than in many other jurisdictions.
Article 34 of the UAE Corporate Tax Law establishes the arm’s length principle as the core requirement. It says that transactions between related parties and connected persons must be priced as they would be between independent parties in comparable circumstances. This applies to every type of controlled transaction, goods, services, financial arrangements, royalties, and management fees.
The UAE’s approach is unique due to its broad scope. While many OECD countries mainly target cross-border transactions, UAE law mandates the arm’s length principle for domestic deals. A transaction between a Dubai mainland company and its Abu Dhabi subsidiary must meet the same arm’s length standard as a cross-border deal with a foreign affiliate. Even businesses operating in Free Zones, including those that qualify for a 0% corporate tax rate, must comply. The obligation does not stop at the border or at tax-rate status.
The UAE’s definition of connected persons also goes further than the standard OECD related-party definition. It covers not just corporate entities with common ownership, but also directors, senior officers, key management personnel, and in some cases their relatives. Considering the high number of family-owned businesses in the UAE, this extension is important. Payments made to a related person that are not conducted at arm’s length will not be claimed as deductions on the corporate tax return.
Article 34(3) of the UAE Corporate Tax Law formally adopts the same five transfer pricing methods set out in OECD transfer pricing guidelines, with no fixed hierarchy between them. The right method for any given transaction is whichever produces the most reliable arm’s length result, based on the facts and the functional profile of each party.
The five methods are the Comparable Uncontrolled Price (CUP) method, the Resale Price method, the Cost-Plus method, the Transactional Net Margin Method (TNMM), and the Profit Split method.
Of these, TNMM is by far the most widely used in UAE practice, as it is global. Another consideration is reliable comparables for a net margin benchmark are more accessible than for direct price or gross margin comparisons.
Article 34(4) explicitly permits the use of alternative methods where none of the five recognised OECD methods can be reasonably or reliably applied, provided those alternative methods still satisfy the arm’s length principle and are properly documented. This reflects the principles-based approach of OECD transfer pricing guidelines, which prioritise the right economic outcome over mechanical method selection.
The UAE’s Transfer Pricing Guide also specifies the use of the Interquartile Range (IQR) when working with benchmarking data, rather than the full range suggested in some OECD guidance. This is a practical departure worth noting, results that fall outside the IQR are expected to be adjusted to the median, not just brought within the range.
Whichever method is selected, the FTA expects the choice to be documented and justified. Method selection is not a formality; it is one of the first things an FTA auditor will review.
The OECD’s BEPS Action 13 introduced a three-tier documentation structure: a Master File, a Local File, and Country-by-Country Reporting (CbCR). The UAE has implemented all three under Ministerial Decision No. 97 of 2023, which applies to financial years beginning on or after 1 June 2023.
Beyond these three tiers, the UAE has introduced its own Transfer Pricing Disclosure Form, which goes further than what OECD transfer pricing guidelines require. This form must be submitted as part of the annual corporate tax return by any business with aggregate related-party transactions above AED 40 million per category or connected person payments above AED 500,000. It gives the FTA a structured view of intercompany activity and helps identify where deeper documentation review is warranted.
All documentation must be prepared contemporaneously, before the tax return is filed, not after an enquiry has started. When the FTA requests documentation, it must be provided within 30 days. There is no flexibility on that timeline.
The consequences are direct, and for some businesses, severe:
Failure to maintain the necessary transfer pricing documentation will result in a fine of AED 10,000 for each offense. However, if the same offense occurs within 24 months, the fine will be AED 20,000.
Failure to comply with country-by-country reporting or notification requirements will result in a fine of up to AED 1,000,000.
Apart from the penalty, the Federal Tax Authority also has the authority to adjust the taxable income of the company if it finds that the prices applied by the related parties are not within the arm’s length principle. If the result is outside the acceptable range, based on the benchmarking process, the Federal Tax Authority may increase the taxable income to the median of the range.
For Free Zone businesses, the stakes are still higher. A Qualifying Free Zone Person (QFZP) that fails to meet the arm’s length standard on its intercompany transactions risks losing its 0% corporate tax status entirely and being reclassified as a standard taxable person subject to the 9% rate. That reclassification can apply to past periods as well as future ones.
The risk is real, as a recent case involving a Dubai-based electronics distributor showed how quickly non-compliance can escalate. The company had a longstanding supply arrangement with its Singapore parent but had never formalised a transfer pricing methodology or maintained documentation. When the FTA reviewed its corporate tax return, the absence of documentation triggered an audit, an income adjustment, and penalties, all of which could have been avoided with a properly maintained Local File.
The transfer pricing regime in the UAE is still evolving, and 2025 has brought two significant developments that help bring it more in line with best practices as recommended by the OECD.
First, the APA program has been launched. In December 2025, the FTA launched its APA program, commencing with Unilateral APAs. An APA lets a business agree on its transfer pricing method with the FTA beforehand, providing certainty for the relevant tax periods and reducing audit risk for agreed transactions.
The minimum transaction amount for a Unilateral APA is AED 100 million per tax period. Bilateral and Multilateral APAs, which involve tax authorities from other countries, are expected to be introduced later. For businesses with complex cross-border pricing, especially those dealing with intangibles or financial transactions, an APA is one of the most effective tools available.
The second development is the publication of formal MAP guidance by the Ministry of Finance in June 2025. MAP is the recommended approach by the OECD to resolve double taxation disputes between treaty countries. In the UAE MAP procedure, a taxpayer that thinks it is being taxed in error under a double taxation treaty can seek help from the Ministry of Finance, which is the competent authority in the UAE.
The request must be made within three years from the time the taxpayer knows about the matter. For companies that engage in cross-border transactions with related parties and are already in a transfer pricing dispute, early MAP requests are recommended.
In general, the APA program and MAP guidance reflect that the UAE is moving away from a documentation compliance approach to a certainty and dispute resolution process, in line with the OECD transfer pricing guidelines.
The UAE’s transfer pricing rules are built directly on OECD transfer pricing guidelines, not loosely inspired by them, but formally aligned with the 2022 OECD framework. The arm’s length principle is embedded in primary legislation, where all five OECD pricing methods are adopted without hierarchy.
The three-tier BEPS documentation structure is required for qualifying businesses. When the UAE’s guidance does not address a particular issue, the FTA advises businesses to refer to OECD guidelines as the standard. The UAE-specific requirements, including the connected-person rules, domestic transaction scope, Disclosure Form, and Free Zone compliance, are tailored to the local business environment. It is equally important to understand these additions as it is to understand the OECD framework they build upon.
As the FTA begins reviewing the initial batch of corporate tax returns and enforcement efforts are expected to rise, now is the crucial time for businesses to organize their transfer pricing. The guidelines are well-defined, expectations are outlined, and the consequences of non-compliance are serious.
