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:
- Comparable Uncontrolled Price (CUP)
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method (TNMM)
- 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.
