Transfer pricing study in the UAE

Transfer pricing study in the UAE

Understanding transfer pricing obligations in the Emirates’ evolving tax landscape

The introduction of the UAE’s corporate tax regime in 2023 marked a pivotal moment in the country’s approach to international tax compliance. One of the key areas of focus is transfer pricing — a mechanism used to regulate financial transactions between related parties. For companies with cross-border structures or local affiliates, the Transfer Pricing Study has become an essential document to demonstrate that their internal dealings comply with market-based standards.

In this article, we explore what a transfer pricing study entails in the UAE, which businesses are affected, and how to ensure full compliance with the new legislation.

How transfer pricing fits into the UAE tax system

Transfer pricing rules were incorporated into UAE law through Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. The legislation came into effect on 1 June 2023, introducing the arm’s length principle for transactions between related parties and connected persons.

The objective is clear: to ensure that taxable profits are appropriately reported and taxed within the UAE, in line with the OECD’s base erosion and profit shifting (BEPS) guidelines. To achieve this, companies are now required to justify the pricing of internal transactions through comprehensive documentation.

Which companies need a transfer pricing study

Not all businesses in the UAE will be subject to full transfer pricing documentation requirements. However, the arm’s length principle applies universally — meaning all companies must ensure internal prices reflect fair market value.

Transfer pricing documentation is generally mandatory for:

• Businesses with related-party transactions, either domestically or cross-border;

• Multinational groups with a presence in the UAE;

• Free Zone companies that benefit from tax incentives, especially if they transact with foreign or local affiliates;

• Entities exceeding the AED 200 million revenue threshold, which may trigger the requirement to maintain Master and Local Files.

Companies below this threshold may still need to submit a Disclosure Form alongside their corporate tax return, declaring the existence and nature of related-party transactions.

What a UAE-compliant transfer pricing study should contain

Preparing a robust transfer pricing study involves more than collecting invoices and contracts. The UAE’s framework, while inspired by OECD standards, introduces jurisdiction-specific expectations.

A typical study includes:

• Overview of the business group (Master File): general information about global operations, structure, intangible assets, and financial arrangements;

• Detailed transactional analysis (Local File): specific review of the UAE entity’s intercompany dealings, including economic justifications for pricing;

• Benchmarking and comparables: market data that supports the selected pricing strategy;

• Justification of methods: explanation of why a particular transfer pricing method (e.g. TNMM, CUP, Cost Plus) was chosen;

• Functional profile: analysis of risks assumed, functions performed, and assets used by each party to the transaction.

Documentation must be updated annually and provided to the Federal Tax Authority (FTA) upon request.

Strategic risks of ignoring transfer pricing rules

With corporate tax now in place, the FTA has enforcement powers and can adjust taxable income if it finds that intercompany pricing is not in line with market standards. Non-compliance can lead to:

• Financial penalties for failure to submit or maintain required documentation;

• Transfer pricing adjustments, increasing the taxable base;

• Reputational damage in the event of audits or disputes;

• Delays in obtaining tax clearance or refund approvals.

In short, inadequate transfer pricing practices can become a significant risk factor for any business, particularly those seeking to benefit from Free Zone regimes or international tax treaties.

Common mistakes businesses should avoid

As the UAE tax framework is still new, many companies are encountering transfer pricing requirements for the first time. Common pitfalls include:

• Copy-pasting global TP studies without localising them for the UAE’s legal and economic context;

• Ignoring intra-group services such as management fees, royalties, or shared costs;

• Relying on internal cost allocations without external benchmarking;

• Underestimating the need for contemporaneous documentation — waiting until an audit notice is received is too late.

Proactive documentation and planning can avoid these risks.

How Hadjivangeli supports UAE-based businesses

At Hadjivangeli Advocates LLC, we assist companies across sectors in navigating the growing complexities of international and UAE-specific transfer pricing regulations. Our services include:

• Preparation of UAE-compliant Master and Local Files;

• Benchmarking studies using regional and global comparables;

• Strategic structuring of related-party transactions;

• Drafting and submission of TP Disclosure Forms;

• Legal support in case of tax authority inquiries or disputes.

Whether you are a local business with foreign shareholders, a Free Zone entity with group service arrangements, or a multinational restructuring its presence in the Gulf region, our legal team ensures your transfer pricing framework is compliant and defensible.

Transfer pricing compliance in the UAE is no longer a concern reserved for global conglomerates. It is now a standard part of tax governance for any business engaged in related-party transactions. A professionally prepared transfer pricing study not only satisfies legal requirements — it also protects the company’s financial interests and demonstrates good corporate citizenship.

If you would like to assess your company’s readiness for transfer pricing audits or need support with documentation, contact Hadjivangeli Advocates. We are here to help you build a compliant and efficient tax strategy in the UAE.

This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication. This article is for informational purposes only. For further advice, please contact us at the contacts listed on the site.