When two companies under the same ownership conduct business with each other, how do they determine the right price for their transactions?
Under the UAE Corporate Tax framework, these arrangements must follow specific pricing requirements. Businesses cannot simply set any price they choose for transactions between related entities. They must be able to demonstrate that the terms reflect what independent parties would agree under comparable circumstances.
This is known as the Arm’s Length Principle, and it is an important part of Transfer Pricing compliance in the UAE.
For businesses with group structures, shared services or cross-border operations, reviewing these transactions is essential to maintaining a supportable tax position.
Published: 6 November 2026 | Category: Tax Updates & Compliance
Understanding Transfer Pricing in the UAE
Transfer Pricing refers to the pricing of transactions between Related Parties and Connected Persons.
Common examples include:
- Sales and purchases between group companies.
- Management and administrative service fees.
- Loans and other financing arrangements.
- Royalty payments for trademarks and intellectual property.
- Shared operational and technical services.
Under UAE Corporate Tax rules, these transactions must comply with the Arm’s Length Principle, meaning their pricing should be consistent with comparable arrangements between independent parties.
What Should Businesses Review?
Businesses should pay particular attention to how their related-party transactions are structured, priced and documented.
Intra-group services: Management, administrative and technical service charges should be supported by evidence that the services were actually provided and benefited the receiving entity.
Financing arrangements: Intercompany loans should have commercially reasonable interest rates, repayment terms and supporting financial information.
Intellectual property: Royalty arrangements should consider which entities develop, maintain, protect and exploit the relevant intellectual property.
Goods and product transactions: Prices charged between related companies should be supported by appropriate market comparisons and a suitable pricing methodology.
The commercial purpose of each transaction should be clear, and the supporting documents should reflect what actually takes place.
Transfer Pricing Methods and Documentation
The UAE recognises five transfer pricing methods for assessing whether transactions meet the Arm’s Length Principle:
- Comparable Uncontrolled Price (CUP) Method.
- Resale Price Method.
- Cost Plus Method.
- Transactional Net Margin Method (TNMM).
- Transactional Profit Split Method.
The appropriate method depends on the nature of the transaction and the available information.
Under Ministerial Decision No. 97 of 2023, certain taxable persons must prepare and maintain a Master File and Local File if they meet either of these thresholds:
- Annual revenue of at least AED 200 million.
- Membership in a multinational enterprise group with consolidated group revenue of at least AED 3.15 billion.
Businesses below these thresholds are not automatically exempt from Transfer Pricing requirements. They must still apply the Arm’s Length Principle to relevant transactions and maintain appropriate supporting records.
Records Businesses Should Maintain
Proper documentation helps explain how related-party transactions are priced and why the arrangements are commercially justified.
Businesses should consider maintaining:
- Related-party transaction schedules.
- Intercompany agreements and invoices.
- Financial statements and accounting records.
- Benchmarking studies and pricing calculations.
- Functional analysis covering functions, assets and risks.
- Evidence of services performed and benefits received.
It is also important to ensure that transfer pricing documentation agrees with accounting records and Corporate Tax disclosures.
How to Strengthen Transfer Pricing Compliance
Businesses can take practical steps to improve their readiness:
- Identify related parties: Review ownership and management relationships to identify relevant transactions.
- Review pricing policies: Check whether the selected pricing methods remain appropriate.
- Update supporting documents: Maintain agreements, invoices and financial calculations.
- Assess actual business activities: Ensure documented arrangements reflect the functions performed and risks assumed.
- Reconcile financial records: Check that accounting information and tax disclosures are consistent.
Regular reviews can help identify documentation gaps and address potential issues before they become more difficult to resolve.
Conclusion
Transfer Pricing compliance involves more than preparing documents or assigning prices to transactions between related companies. Businesses must be able to explain their pricing decisions and demonstrate that their arrangements reflect genuine commercial activities.
By maintaining appropriate records, reviewing pricing methodologies and ensuring consistency across financial and tax information, UAE businesses can strengthen their compliance position and prepare for potential FTA scrutiny.
This article is intended for general informational purposes only and does not constitute tax or legal advice. Transfer Pricing requirements depend on the nature of the transaction and the circumstances of each taxable person. Businesses should refer to applicable UAE legislation and seek professional advice where necessary.
Official References
- UAE Ministry of Finance – Ministerial Decision No. 97 of 2023
- Federal Tax Authority – Transfer Pricing Guide
