Month: January 2026

What Is Withholding Tax?

Withholding tax is a tax deducted at source by the payer when making certain payments to another party, typically a non-resident. The payer withholds a portion of the payment and remits it to the tax authority on behalf of the recipient.

In many countries, withholding tax applies to payments such as:

• Interest
• Royalties
• Dividends
• Technical or professional service fees
• Management fees

The purpose of withholding tax is to ensure tax collection on income earned within a country by non-residents.

Does Withholding Tax Apply in Dubai?

The UAE’s Unique Position

Historically, the UAE has been known as a low-tax jurisdiction, with no personal income tax and no withholding tax on most outbound payments. Even after the introduction of the UAE Corporate Tax (Federal Decree-Law No. 47 of 2022), the UAE has retained its attractive withholding tax framework.

Current Withholding Tax Rate in Dubai

As per the UAE Corporate Tax Law:

• Withholding Tax Rate: 0%
• Applicable to payments made to non-resident persons
• Effective across all Emirates, including Dubai

This means that while certain payments are classified as subject to withholding tax, the rate is currently zero, resulting in no actual tax deduction.

Legal Basis of Withholding Tax in the UAE

Under the UAE Corporate Tax Law:

• Withholding tax applies to UAE-sourced income earned by non-resident persons
• The tax is deducted by the payer at the time of payment or credit
• The UAE Cabinet has set the withholding tax rate at 0%, effective from the implementation of corporate tax
• This framework allows the UAE government to:
• Monitor cross-border payments
• Retain flexibility to revise rates in the future
• Align with international tax standards without burdening businesses

Who Is Considered a Non-Resident for Withholding Tax?

A non-resident person is an individual or legal entity that:

• Is not resident in the UAE for corporate tax purposes
• Does not have a permanent establishment in the UAE, or
• Earns UAE-sourced income without having a taxable presence

Payments to UAE-resident entities are not subject to withholding tax, regardless of the nature of the payment.

What Types of Income Are Covered Under Withholding Tax?

While the withholding tax rate is 0%, it is important to understand which types of income fall under the withholding tax regime.

Common categories include:

1. Interest Income

Payments of interest to foreign lenders, banks, or financial institutions.

2. Royalties

Payments for:

• Use of intellectual property
• Trademarks
• Patents
• Software licenses

3. Dividends

Dividends paid by UAE companies to foreign shareholders.

4. Service Fees

Payments for:

• Technical services
• Consultancy services
• Management services
• Professional services

5. Other UAE-Sourced Income

Any income derived from activities connected to the UAE.

Even though these payments fall under withholding tax, no tax is deducted due to the 0% rate.

Practical Examples of Withholding Tax in Dubai

Example 1: Consultancy Fees Paid to a Foreign Consultant

A Dubai-based company hires a UK consultant to provide strategic advisory services. The consultant does not have a permanent establishment in the UAE.

• Nature of payment: Consultancy fees
• Recipient: Non-resident
• Withholding tax rate: 0%
• Tax deducted: Nil

Outcome: The Dubai company pays the full invoice amount without deduction.

Example 2: Royalty Payment to a Foreign Software Provider

A Dubai business pays annual license fees to a US-based software company for enterprise software.

• Nature of payment: Royalty
• Recipient: Non-resident
• Withholding tax rate: 0%

Outcome: No withholding tax is deducted, but the transaction should be properly documented.

Example 3: Interest Payment on Foreign Loan

A Dubai company takes a loan from a foreign parent company and pays interest annually.

• Nature of payment: Interest
• Recipient: Non-resident related party
• Withholding tax rate: 0%

Outcome: No withholding tax deduction, but transfer pricing and arm’s length principles may apply.

Example 4: Dividend Paid to Overseas Shareholder

A Dubai company declares dividends to a shareholder based in Singapore.

• Nature of payment: Dividend
• Recipient: Non-resident shareholder
• Withholding tax rate: 0%

Outcome: Full dividend is remitted without deduction.

Withholding Tax vs Corporate Tax in Dubai

It is important not to confuse withholding tax with corporate tax.

Withholding tax does not replace corporate tax and applies only to specific outbound payments.

Impact of Double Taxation Avoidance Agreements (DTAA)

The UAE has an extensive network of Double Taxation Avoidance Agreements (DTAs) with over 130 countries.

Why DTAAs Matter

• Protect foreign recipients from being taxed twice
• Define taxing rights between countries
• Become critical if withholding tax rates change in the future

Currently, since the UAE withholding tax rate is 0%, DTAA benefits are not required for claiming relief. However, maintaining DTAA documentation is considered a best practice.

Compliance and Documentation Requirements

Even though no tax is deducted, businesses in Dubai should maintain proper records to support withholding tax positions.

Key Documents to Maintain

• Service agreements or contracts
• Invoices from foreign vendors
• Proof of payment
• Tax residency certificate (if available)
• Transfer pricing documentation (for related party transactions)

Good documentation ensures:

• Smooth tax audits
• Future compliance readiness
• Reduced risk if laws change

Transfer Pricing and Withholding Tax

Withholding tax at 0% does not eliminate transfer pricing obligations.

If payments are made to related foreign entities:

• Transactions must be at arm’s length
• Proper benchmarking is required
• Transfer pricing documentation may be mandatory

Incorrect pricing can result in corporate tax adjustments, even if withholding tax is nil.

Free Zone Companies and Withholding Tax

Free Zone companies in Dubai:

• Are treated the same as mainland companies for withholding tax
• Continue to enjoy 0% withholding tax on outbound payments
• Must comply with corporate tax and transfer pricing rules

Being a Qualifying Free Zone Person does not change withholding tax applicability.

Will Withholding Tax Rates Increase in the Future?

The UAE has intentionally set withholding tax at 0% to:

• Encourage foreign investment
• Maintain competitiveness
• Align with global best practices

However, the legal framework allows the government to revise rates in the future. Businesses should:

• Monitor regulatory updates
• Structure contracts with tax flexibility clauses
• Seek professional advice for long-term agreements

Common Myths About Withholding Tax in Dubai

Myth 1: Withholding tax does not exist in the UAE

Reality: It exists, but the rate is currently 0%.

Myth 2: DTAA is not relevant in the UAE

Reality: DTAA is critical for long-term tax planning and future changes.

Myth 3: Free Zone companies are exempt from all taxes

Reality: Free Zone companies must still comply with corporate tax and reporting requirements.

Best Practices for Businesses in Dubai

To manage withholding tax effectively:

• Review all cross-border payments
• Classify income correctly
• Maintain proper agreements and invoices
• Assess transfer pricing implications
• Stay updated on tax law changes

Proactive compliance reduces risk and enhances credibility with tax authorities.

How Ease to Compliance Can Help

Managing withholding tax, corporate tax, and cross-border compliance can be complex, especially for growing businesses in Dubai. Ease to Compliance provides end-to-end tax advisory and compliance services, including:

• UAE Corporate Tax registration and filing
• Withholding tax applicability assessment
• Transfer pricing documentation
• DTAA advisory and tax planning
• Cross-border transaction structuring

Our experts ensure that your business remains compliant while optimising tax efficiency.
Contact Ease to Compliance to get professional support tailored to your business needs.

Conclusion

Withholding tax in Dubai is simple in application but important in understanding. While the current withholding tax rate remains at 0%, businesses must still recognise applicable payments, maintain documentation, and comply with broader corporate tax and transfer pricing regulations.

As the UAE continues to evolve its tax framework, being informed and prepared is critical. A proactive approach today will protect your business from compliance risks tomorrow.

FAQs – Withholding Tax in Dubai

1. Is withholding tax applicable on payments to freelancers outside the UAE?

Answer: Yes, payments to foreign freelancers may fall under withholding tax in Dubai if the income is UAE-sourced, though the current rate remains 0%.

2. Do Dubai companies need to file a separate withholding tax return?

Answer: Currently, there is no separate withholding tax return required in Dubai due to the 0% rate, but reporting obligations may be introduced in the future.

3. Is withholding tax applicable on reimbursements paid to foreign entities?

Answer: Pure reimbursements without a profit element are generally not subject to withholding tax, provided proper documentation is maintained.

4. Does withholding tax apply to payments made through foreign branches?

Answer: Withholding tax applicability depends on whether the income is considered UAE-sourced and whether the recipient has a permanent establishment in the UAE.

5. Can withholding tax in Dubai impact transfer pricing assessments?

Answer: While withholding tax is 0%, related-party cross-border payments are still subject to transfer pricing scrutiny under UAE Corporate Tax regulations.

Dubai’s introduction of Corporate Tax marks a fundamental shift in how businesses operating in the Emirate manage tax compliance and inter-company dealings. One of the most critical and closely scrutinised areas under the UAE Corporate Tax framework is Related Party Transactions under Dubai, commonly referred to as RPTs. These transactions, if not structured and documented correctly, can expose businesses to tax adjustments, penalties, and increased compliance risks.

This article provides a comprehensive guide to Related Party Transactions under Dubai Corporate Tax, covering key definitions, legal provisions, the arm’s length principle, transfer pricing rules, disclosure requirements, penalties, and practical examples relevant to Dubai-based businesses.

Introduction to Dubai Corporate Tax and Related Party Transactions

The UAE Corporate Tax regime, effective from 1 June 2023, applies uniformly across all Emirates, including Dubai. While commonly referred to as “Dubai Corporate Tax” in business practice, the law is federally governed under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022).

Related Party Transactions are a key focus area because they present a higher risk of profit shifting, tax base erosion, and non-arm’s-length pricing. As a result, Dubai businesses engaging in transactions with related entities or connected persons must ensure strict compliance with transfer pricing principles.

What Are Related Party Transactions?

A Related Party Transaction refers to any financial or commercial transaction conducted between a taxable person and another party that is considered “related” under the UAE Corporate Tax Law.

These transactions may include:

• Sale or purchase of goods
• Provision of services
• Financing arrangements
• Use or transfer of intellectual property
• Cost-sharing or management fees

Under Dubai Corporate Tax, such transactions must be conducted at arm’s length, meaning the terms and pricing should be comparable to those agreed between independent parties under similar circumstances.

Definition of Related Parties Under Dubai Corporate Tax

Related Parties

Under the UAE Corporate Tax Law, Related Parties include those with which there is control, ownership, or significant influence. Common examples include:

• Parent companies and subsidiaries
• Companies under common control
• Entities with direct or indirect ownership interests
• Permanent establishments and their head offices
• Partners in the same partnership

Ownership thresholds and control tests are applied to determine whether parties are considered related.

Connected Persons

In addition to Related Parties, the law also defines Connected Persons, which include:

• Company directors
• Company officers
• Shareholders with ownership or influence
• Relatives up to the fourth degree of kinship

Transactions with Connected Persons are also subject to arm’s length requirements.

Types of Related Party Transactions Covered

Dubai Corporate Tax covers a wide range of related party transactions, including but not limited to:

1. Sale and Purchase of Goods

Inter-company trading of raw materials, finished goods, or inventory must be priced at market value.

2. Services and Management Fees

Management services, technical support, IT services, HR services, and shared service arrangements are closely examined by tax authorities.

3. Financing Transactions

Loans, advances, guarantees, and interest arrangements between related parties must reflect market interest rates and terms.

4. Intellectual Property Transactions

Royalty payments, licensing fees, and transfer of IP rights must be benchmarked against comparable market transactions.

5. Cost Allocation and Cost Sharing

Allocation of group expenses must follow a reasonable and documented allocation key.

The Arm’s Length Principle Explained

The Arm’s Length Principle (ALP) is the cornerstone of related party compliance under Dubai Corporate Tax.

What Does Arm’s Length Mean?

A transaction is considered arm’s length if:

• The pricing
• The terms
• The conditions

are consistent with what independent parties would have agreed in comparable circumstances.

If the Federal Tax Authority (FTA) determines that a transaction is not at arm’s length, it has the power to adjust taxable income accordingly.

Transfer Pricing Rules Under Dubai Corporate Tax

Related Party Transactions in Dubai are governed by transfer pricing regulations, aligned with OECD Transfer Pricing Guidelines.

Accepted Transfer Pricing Methods

Businesses may use one of the following methods, depending on the nature of the transaction:

1. Comparable Uncontrolled Price (CUP) Method
2. Resale Price Method
3. Cost Plus Method
4. Transactional Net Margin Method (TNMM)
5. Transactional Profit Split Method

The selected method must be:

• Appropriate to the transaction
• Consistently applied
• Supported by documentation

Documentation Requirements for Related Party Transactions

Dubai Corporate Tax mandates robust documentation to substantiate arm’s length pricing.

Key Documentation Includes:

• Transfer pricing policy
• Functional, asset, and risk (FAR) analysis
• Benchmarking studies
• Inter-company agreements
• Economic analysis

While documentation submission may not be mandatory for all businesses, it must be available upon request by the FTA.

Thresholds and Applicability

Not all businesses are subject to the same level of documentation requirements.

• Large multinational groups are subject to extensive transfer pricing compliance.
• SMEs may benefit from simplified documentation, subject to thresholds prescribed by the Ministry of Finance.
• Free Zone entities are not exempt from arm’s length rules, even if they benefit from a 0% tax rate on qualifying income.

Failure to maintain documentation can result in adverse tax adjustments.

Disclosure of Related Party Transactions in Corporate Tax Return

Dubai businesses must disclose related party transactions in their Corporate Tax Return.

Disclosure typically includes:

• Nature of transaction
• Identity of related party
• Transaction value
• Confirmation of arm’s length compliance

Incorrect or incomplete disclosure increases audit risk.

Penalties for Non-Compliance

Non-compliance with related party and transfer pricing rules can result in:

• Adjustment of taxable income
• Administrative penalties
• Interest on unpaid tax
• Increased scrutiny in future tax periods

Penalties may also apply for failure to maintain or submit documentation when requested.

Practical Examples of Related Party Transactions in Dubai

Example 1: Management Fees

A Dubai-based subsidiary pays management fees to its foreign parent. Without benchmarking, the FTA may disallow excessive fees.

Example 2: Intercompany Loan

A shareholder provides an interest-free loan to a Dubai company. The FTA may impute market interest income.

Example 3: Free Zone Entity

A Free Zone company transacts with its mainland parent. Arm’s length pricing still applies despite tax incentives.

Impact on SMEs and Free Zone Entities

SMEs

Small and medium enterprises often underestimate related party compliance. Even informal arrangements with shareholders can trigger arm’s length requirements.

Free Zone Companies

Free Zone tax benefits do not override transfer pricing obligations. Non-compliant RPTs can jeopardise qualifying income status.

Best Practices for Managing Related Party Transactions

To mitigate risk, Dubai businesses should:

• Identify all related parties and connected persons
• Formalise inter-company agreements
• Implement transfer pricing policies
• Conduct periodic benchmarking studies
• Maintain contemporaneous documentation

Proactive compliance reduces audit exposure and financial risk.

How Ease to Compliance Can Help

At Ease to Compliance, we assist Dubai businesses with:

• Identification of related parties and connected persons
• Transfer pricing policy development
• Benchmarking and economic analysis
• Documentation preparation
• Corporate Tax Return Disclosure
• Audit and FTA representation

Our team ensures your related party transactions remain compliant, defensible, and tax-efficient.
If you require expert assistance with related party compliance under Dubai Corporate Tax, transfer pricing documentation, or Corporate Tax return disclosures, contact our team today for tailored, practical support.

Conclusion

Related Party Transactions under Dubai Corporate Tax require careful planning, proper pricing, and strong documentation. With increased scrutiny by tax authorities, businesses must move beyond informal arrangements and adopt a structured, compliant approach.

By aligning related party dealings with the arm’s length principle and transfer pricing rules, Dubai businesses can safeguard themselves against tax adjustments and penalties while maintaining operational efficiency.

FAQs – Related Party Transactions Under Dubai Corporate Tax

1. Do related party transactions need to be conducted at arm’s length even if they result in a tax loss?

Answer: Yes, the arm’s length principle applies regardless of whether the transaction leads to a profit or a loss. The Federal Tax Authority can still adjust non-arm’s-length pricing even if the transaction does not reduce the immediate tax payable.

2. Are historical related party agreements signed before the Corporate Tax effective?

Answer: Yes, Contracts and arrangements entered into before the introduction of Dubai Corporate Tax may still be reviewed. If such agreements continue after the effective date, they must comply with arm’s length requirements.

3. Is transfer pricing benchmarking required every year?

Answer: Not necessarily. While benchmarking studies do not always need annual updates, businesses should review and refresh them periodically or when there is a material change in business, functions, risks, or economic conditions.

4. Can the Federal Tax Authority request related party documentation during a tax audit?

Answer: Yes, the FTA has the authority to request transfer pricing documentation and related party agreements during audits, even if these documents were not submitted with the Corporate Tax return.

5. Are domestic related party transactions within the UAE subject to transfer pricing?

Answer: Yes, Transfer pricing and arm’s length rules apply to both cross-border and domestic related party transactions, including transactions between mainland and Free Zone entities.

With the introduction of UAE Corporate Tax and the increasing focus on global tax transparency, transfer pricing in Dubai has become a critical compliance area for multinational enterprises, group companies, and related-party businesses operating in the emirate. The UAE’s transfer pricing framework is closely aligned with OECD Transfer Pricing Guidelines, making robust documentation and arm’s length pricing mandatory.

In recent years, global tax authorities have intensified scrutiny on cross-border transactions to combat base erosion and profit shifting (BEPS). As a member of the OECD Inclusive Framework, the UAE has committed to implementing internationally accepted tax standards, including robust transfer pricing regulations.

For businesses operating in Dubai, transfer pricing compliance is no longer limited to large multinationals. Even mid-sized groups, free zone entities, and businesses with simple related-party transactions are now required to demonstrate arm’s length pricing.

The Federal Tax Authority (FTA) has the power to request transfer pricing documentation, review intercompany pricing policies, and make tax adjustments where transactions are not aligned with economic reality. As a result, businesses must proactively adopt structured transfer pricing frameworks rather than reacting during audits.

This guide explains transfer pricing rules in Dubai, including applicable thresholds, documentation requirements, compliance obligations, and penalties, to help businesses remain compliant and audit-ready.

What Is Transfer Pricing?

Transfer pricing refers to the pricing of transactions between related parties or connected persons, including goods, services, financing, royalties, and transfers of intellectual property. These transactions must be conducted at an arm’s length price, meaning the price should be comparable to what independent parties would agree upon under similar circumstances.

In Dubai, transfer pricing rules aim to:

• Prevent profit shifting
• Ensure fair taxation
• Align taxable income with economic substance

Legal Framework for Transfer Pricing in Dubai

Transfer pricing in Dubai is governed under:

• Federal Decree-Law No. 47 of 2022 (UAE Corporate Tax Law)
• OECD Transfer Pricing Guidelines
• Ministerial Decisions and Cabinet Resolutions

The UAE Corporate Tax Law requires that all related-party transactions adhere to the arm’s length principle, supported by proper documentation.

Objectives of Transfer Pricing Regulations in Dubai

The primary objective of transfer pricing regulations in Dubai is to ensure that taxable profits are aligned with value creation and economic substance. By enforcing the arm’s length principle, the UAE seeks to prevent artificial profit shifting to low-tax or no-tax jurisdictions.

Transfer pricing rules also promote fairness and transparency in taxation, ensuring that businesses operating in Dubai contribute their appropriate share of corporate tax. Additionally, these regulations enhance the UAE’s reputation as a globally compliant and business-friendly jurisdiction, reducing the risk of being classified as a tax haven.

For businesses, proper transfer pricing compliance improves tax certainty, reduces the likelihood of disputes, and strengthens internal governance over intercompany transactions.

Who Must Comply With Transfer Pricing in Dubai?

Transfer pricing regulations apply to:

• UAE companies engaged in related-party transactions
• Multinational groups with operations in Dubai
• Free zone entities (including qualifying free zone persons)
• Branches of foreign companies
• Permanent establishments in Dubai

Both residents and non-residents under the UAE Corporate Tax Law may fall under transfer pricing compliance.

Practical Examples of Applicable Businesses

Examples of businesses required to comply with transfer pricing rules in Dubai include:

• A Dubai mainland company is purchasing management services from its parent company abroad
• A free zone entity selling goods to a related mainland distributor
• A UAE subsidiary paying royalties or license fees to a foreign group company
• A Dubai branch receiving head office support services

Even where transactions are domestic within the UAE, arm’s length pricing and documentation may still be required. The form of the transaction is less important than the relationship between the parties involved.

Related Parties and Connected Persons Explained

Related Parties

Entities are considered related if there is:

• Direct or indirect ownership
• Common control
• Shared management or voting rights

Connected Persons

Includes:

• Directors
• Owners
• Key management personnel
• Family members of owners or managers

Transactions with connected persons must also meet arm’s length standards.

Transfer Pricing Documentation Requirements in Dubai

Proper documentation is the cornerstone of transfer pricing compliance in Dubai. Businesses must maintain the following:

1. Local File

The local file provides detailed information about:

• Related-party transactions
• Functional analysis
• Comparability analysis
• Transfer pricing method used

2. Master File

The master file includes:

• Group structure
• Business overview
• Intangible assets
• Intercompany financing arrangements
• Overall transfer pricing policies

3. Transfer Pricing Disclosure Form

This form must be filed annually along with the UAE Corporate Tax Return, disclosing:

• Nature of related-party transactions
• Transaction values
• Counterparties

Importance of Contemporaneous Documentation

Contemporaneous documentation means preparing transfer pricing documents at the time transactions occur, rather than after receiving a tax authority notice. The FTA expects businesses to maintain documentation that reflects pricing decisions made during the financial year.

Well-prepared documentation demonstrates that the taxpayer has exercised reasonable care and commercial judgment when setting prices. It also significantly reduces exposure to penalties and aggressive tax adjustments during audits.

Businesses should ensure that intercompany agreements, benchmarking studies, and financial data are aligned and updated annually. Inconsistencies between legal agreements and actual conduct are a common trigger for transfer pricing disputes.

Transfer Pricing Thresholds in Dubai

Transfer pricing thresholds in Dubai determine whether a business is required to prepare a Master File and Local File. These thresholds are prescribed by the Ministry of Finance and are generally linked to:

• Consolidated group revenue
• Total value of related-party transactions
• Nature and frequency of intercompany dealings

However, it is important to note that arm’s length compliance applies regardless of thresholds. Even if a business is exempt from maintaining a Master File or Local File, the FTA may still challenge pricing and request justification.

As a best practice, businesses should perform an annual transfer pricing risk assessment to determine whether documentation thresholds are met and whether simplified documentation should still be maintained.

Accepted Transfer Pricing Methods in Dubai

Dubai follows OECD-approved methods, including:

1. Comparable Uncontrolled Price (CUP)
2. Resale Price Method
3. Cost Plus Method
4. Transactional Net Margin Method (TNMM)
5. Profit Split Method

The selected method must be:

• Most appropriate to the transaction
• Supported by benchmarking studies
• Consistently applied

Role of Intercompany Agreements in Transfer Pricing Compliance

Intercompany agreements play a crucial role in transfer pricing compliance in Dubai. These agreements define the legal and commercial terms of related-party transactions, including pricing mechanisms, responsibilities, and risk allocation.

The FTA places significant emphasis on whether the actual conduct of parties aligns with contractual terms. If agreements are missing, outdated, or inconsistent with operational reality, the authority may disregard them and recharacterize transactions.

Businesses should ensure that intercompany agreements are updated, legally enforceable, and aligned with transfer pricing policies and benchmarking outcomes.

Transfer Pricing Compliance Timeline

• Maintain documentation throughout the financial year
• File the disclosure form with the corporate tax return
• Submit documentation to FTA within the prescribed timeframe upon request

Failure to produce documentation when requested may result in penalties.

Penalties for Non-Compliance

Non-compliance with transfer pricing rules in Dubai may lead to:

• Administrative penalties
• Adjustments to taxable income
• Increased scrutiny or audits
• Reputational and regulatory risks

Proper documentation significantly reduces exposure to disputes and penalties.

Beyond financial penalties, transfer pricing non-compliance may lead to prolonged audits, increased reporting obligations, and reputational damage. Adjustments made by the FTA may also impact future tax years, compounding the financial exposure.

In cross-border cases, transfer pricing adjustments in Dubai may result in double taxation if corresponding relief is not available in the counterparty jurisdiction. This makes proactive compliance essential for international groups.

Impact on Free Zone Companies in Dubai

Even qualifying free zone persons must comply with transfer pricing regulations when dealing with:

• Mainland-related parties
• Foreign group entities
• Connected persons

Transfer pricing compliance is essential to retain tax incentives and free zone benefits.

Best Practices for Transfer Pricing in Dubai

To ensure compliance:

• Conduct annual transfer pricing reviews
• Prepare benchmarking studies
• Maintain contemporaneous documentation
• Align intercompany agreements with pricing policies
• Seek professional advisory support

How Ease to Compliance Can Help

At Ease to Compliance, we provide end-to-end support for transfer pricing in Dubai, including:

• Transfer pricing policy design
• Benchmarking and economic analysis
• Master File and Local File preparation
• Transfer pricing disclosure filing
• Audit and assessment support
• Corporate tax and international tax advisory

Our experts ensure your business remains fully compliant, defensible, and aligned with UAE regulations. Contact us Today!

Conclusion

Transfer pricing in Dubai is no longer optional or informal. With UAE Corporate Tax in force, businesses must adopt robust transfer pricing policies, maintain proper documentation, and ensure arm’s length pricing for all related-party transactions.

Early compliance not only avoids penalties but also strengthens tax governance and business credibility in Dubai’s evolving regulatory environment.

FAQs – Transfer Pricing in Dubai

1. Is transfer pricing applicable to purely domestic transactions in Dubai?

Answer: Yes, Transfer pricing rules in Dubai apply not only to cross-border transactions but also to domestic related-party transactions within the UAE, including dealings between mainland and free zone entities.

2. Can the Federal Tax Authority challenge prices even if documentation thresholds are not met?

Answer: Yes. Even when documentation thresholds are not triggered, the FTA has the authority to review, question, and adjust related-party pricing if it does not meet the arm’s length principle.

3. How long must transfer pricing documentation be retained in Dubai?

Answer: Transfer pricing documentation must generally be retained for at least seven years, in line with UAE corporate tax record-keeping requirements, and must be readily available upon request.

4. Are loss-making companies subject to transfer pricing scrutiny in Dubai?

Answer: Yes. Loss-making entities are often subject to higher transfer pricing scrutiny, as persistent losses may indicate non-arm’s length pricing or inappropriate profit allocation within the group.

5. Does transfer pricing apply to management fees charged by group companies?

Answer: Yes. Management fees, support services, and shared services charged by group entities are common focus areas for transfer pricing audits and must be supported by benefit tests, cost allocation keys, and arm’s length mark-ups.

Dubai has emerged as a global hub for trade, investment, and multinational business operations. With companies operating across borders, one of the most critical tax challenges they face is double taxation, paying tax on the same income in two different countries. To address this issue, the UAE has entered into numerous Double Taxation Agreements (DTAs) with other nations.

This article explains what a Double Taxation Agreement in Dubai is, how it works, and how businesses can benefit from it in practical terms.

What Is a Double Taxation Agreement?

A Double Taxation Agreement (DTA), also known as a Double Taxation Avoidance Agreement (DTAA), is a tax treaty between two countries that prevents the same income from being taxed twice.

For example, if a company earns income in Dubai and also has tax obligations in another country, a DTA determines:

• Which country has the primary right to tax that income, and
• Whether tax paid in one country can be credited against tax payable in the other.

Dubai follows the UAE federal tax law, and DTAs are signed by the United Arab Emirates with more than 130 countries worldwide.

Why Double Taxation Is a Problem for Businesses

Without a DTA, businesses face:

• Higher effective tax burden
• Cash flow strain
• Reduced profitability
• Complex compliance obligations
• Risk of disputes with tax authorities

For international companies, double taxation can make expansion commercially unviable. This is why tax treaties are fundamental for cross-border trade and investment.

How the Double Taxation Agreement in Dubai Works

DTAs typically allocate taxing rights based on:

The treaty either:

• Exempts income from tax in one country, or
• Allows a foreign tax credit for tax paid abroad.

Types of Income Covered Under the Double Taxation Agreement in Dubai

The Double Taxation Agreement in Dubai does not apply uniformly to all types of income. Each category of income is treated differently based on treaty articles.

Business Profits

Business profits are taxable only in the country where the business has a Permanent Establishment (PE). If a Dubai-based company sells services or goods abroad without a PE in the foreign country, profits remain taxable only in the UAE.

1. Dividends

Dividends paid by foreign subsidiaries to Dubai holding companies usually attract reduced withholding tax under treaties (typically 5%–10%).

2. Interest Income

Interest earned by Dubai entities from overseas loans or deposits often benefits from reduced or zero withholding tax.

3. Royalties

Royalties paid for intellectual property, such as trademarks, patents, or software, are usually taxed at concessional treaty rates.

4. Capital Gains

Many treaties exempt capital gains from tax in the source country, especially for the sale of shares.

Key Objectives of the Double Taxation Agreement in Dubai

1. Eliminate double taxation
2. Prevent tax evasion
3. Encourage foreign investment
4. Promote transparency
5. Facilitate international trade

Benefits of the Double Taxation Agreement in Dubai for Businesses

1. Reduction in Overall Tax Liability

DTAs significantly reduce or eliminate withholding taxes on:

• Dividends
• Interest
• Royalties

This leads to improved post-tax profitability.

2. Improved Cash Flow

Lower withholding tax means less tax is deducted upfront, allowing businesses to retain working capital.

3. Legal Certainty and Tax Predictability

Businesses can forecast tax costs accurately, improving budgeting and investment planning.

4. Protection Against Disputes

DTAs include a Mutual Agreement Procedure (MAP) to resolve conflicts between tax authorities.

5. Boost to Foreign Direct Investment

Dubai becomes more attractive to foreign investors due to treaty protection.

Who Can Use the Double Taxation Agreement in Dubai?

To claim treaty benefits, businesses must:

• Be tax residents of a treaty country
• Obtain a Tax Residency Certificate (TRC) from the UAE Ministry of Finance
• Have substance in the UAE
• Meet beneficial ownership and anti-abuse rules

To claim treaty benefits, businesses must obtain a Tax Residency Certificate in Dubai from the UAE Ministry of Finance.

Permanent Establishment (PE) Rules

A business becomes taxable in another country if it creates a Permanent Establishment, such as:

• Branch office
• Factory or workshop
• Construction project lasting more than the threshold period

Without a PE, business profits are usually taxed only in the home country.

Substance Requirements and Economic Presence

To prevent misuse of treaties, many countries require proof of economic substance in Dubai, such as:

• Physical office premises
• Employees or management presence
• Operational expenses in the UAE
• Active business activities

Without sufficient substance, treaty benefits may be denied under anti-abuse rules.

Holding a valid business license in Dubai aligned with actual operations is essential to demonstrate substance.

Withholding Tax Impact Under the Double Taxation Agreement in Dubai

Withholding tax applies when income is paid cross-border. DTAs reduce this burden.

This reduction directly improves net income for Dubai businesses.

Impact of UAE Corporate Tax on DTAs

From June 2023, the UAE introduced 9% corporate tax. However:

• DTAs continue to apply
• Foreign tax credits are available
• Tax treaty protection remains valid

This ensures Dubai remains competitive while aligning with global tax standards.

Common Mistakes Businesses Make

• Not applying for a Tax Residency Certificate
• Assuming automatic treaty benefits
• Ignoring beneficial ownership tests
• Not documenting substance
• Using incorrect treaty provisions

Failure to comply can result in denied treaty benefits and exposure to Dubai corporate tax penalties.

Anti-Avoidance Rules and Treaty Abuse Prevention

Countries increasingly apply:

• Principal Purpose Test (PPT)
• Limitation of Benefits (LOB) clauses
• Anti-hybrid mismatch rules

These prevent artificial structures designed solely to gain treaty benefits.

How to Claim Double Taxation Agreement Benefits in Dubai

1. Step 1: Identify applicable treaty
2. Step 2: Check eligibility
3. Step 3: Apply for the UAE Tax Residency Certificate
4. Step 4: Provide documents to the foreign tax authority
5. Step 5: Claim reduced withholding or foreign tax credit

Industries That Benefit the Most

• Technology and SaaS
• Consulting and professional services
• Trading companies
• Logistics and shipping
• IP holding companies
• Investment and holding companies

Country-Specific Treaty Examples

India – UAE Treaty

• Reduced withholding on interest and royalties
• Capital gains are often taxed in the resident country

UK – UAE Treaty

• Eliminates withholding on most passive income
• Supports holding and financing structures

Germany – UAE Treaty

• Provides credit method relief
• Strong anti-abuse clauses

Double Taxation Agreement in Dubai vs Free Zone Benefits

The Double Taxation Agreement (DTA) in Dubai and Free Zone tax incentives serve two different purposes, but they can be strategically combined when structured correctly.

Free Zones in Dubai and the UAE are designed to attract investment by offering operational and tax advantages such as 100% foreign ownership, simplified regulations and, in some cases, corporate tax relief on qualifying income. DTAs, on the other hand, are international treaties aimed at preventing the same income from being taxed twice across two jurisdictions.

Understanding the distinction between the two is critical for businesses operating cross-border.

Key Differences Between DTAs and Free Zone Benefits

Role of Professional Advisors

Due to complexity, businesses should consult professionals for:

• Treaty interpretation
• TRC application
• Transfer pricing documentation
• Cross-border structuring
• Audit defense

Future Outlook of Double Taxation Agreements in Dubai

Dubai is aligning with OECD BEPS standards while maintaining treaty benefits. Expect:

• Stricter substance enforcement
• Digital economy taxation updates
• More transparency and reporting obligations

Conclusion

The Double Taxation Agreement in Dubai is a powerful tool for businesses engaged in cross-border activities. It reduces tax burden, increases certainty, improves profitability, and encourages international expansion. With proper structuring and compliance, businesses can leverage Dubai’s extensive treaty network to operate globally with confidence.

Need Help with DTAA in Dubai?

At Ease to Compliance, we assist businesses with:

• Tax residency certificates
• Treaty benefit analysis
• Corporate tax registration
• International tax structuring

Contact us to ensure you maximise treaty benefits while remaining fully compliant.

FAQs – Double Taxation Agreement in Dubai

Question 1. Does the Double Taxation Agreement in Dubai apply to cryptocurrency or digital asset income?

Answer: Most DTAs were drafted before digital assets existed, so crypto income classification depends on whether it is treated as capital gains, business income, or other income. Professional interpretation is required to apply treaty benefits.

Question 2. Can treaty benefits be denied if the Dubai company is owned by a foreign parent?

Answer: Yes, if the Dubai entity is not the beneficial owner of the income or lacks commercial substance, foreign tax authorities may deny treaty relief under anti-abuse provisions.

Question 3. Are management fees and technical service fees covered under the Double Taxation Agreement in Dubai?

Answer: Some treaties include a separate article for fees for technical services, while others treat them as business profits. The tax treatment varies by treaty and requires specific review.

Question 4. How long does it take to obtain a UAE Tax Residency Certificate for treaty purposes?

Answer: The processing time typically ranges from 2 to 4 weeks, depending on documentation completeness and the authority issuing the certificate.

Question 5. Can treaty benefits be claimed retrospectively for prior years?

Answer: In many cases, yes, but only within the statutory limitation period and subject to providing valid residency and income documentation for those years.