Transfer Pricing: Impact on UAE Businesses

Transfer pricing is a critical concept for multinational corporations (MNCs), involving the pricing of transactions between related entities—such as a parent company and its subsidiary. These transactions can range from the sale of goods and services to the use of intellectual property and the provision of financial services. To ensure fairness and prevent tax evasion, such transactions must comply with the arm’s length principle , which dictates that the terms and pricing should mirror those of transactions between unrelated parties in similar circumstances.

In the UAE, the regulatory landscape for transfer pricing has evolved significantly. With the introduction of Corporate Tax Law effective from June 1, 2023 , the UAE has implemented formal transfer pricing regulations. These rules are aligned with the OECD Transfer Pricing Guidelines and are designed to enhance transparency, prevent profit shifting, and protect the integrity of the country’s tax system.

Under the new regulations, businesses are required to meet several key obligations. First and foremost is adherence to arm’s length pricing , ensuring that intercompany transactions reflect market-based pricing. Additionally, companies must prepare and maintain comprehensive transfer pricing documentation , which includes a Master File that outlines the global operations of the business group and a Local File that details UAE-specific transactions. These documents are essential not just for compliance, but also for demonstrating transparency and due diligence during tax assessments or audits. Moreover, businesses must now disclose related-party transactions in their corporate tax returns , making accurate and timely reporting more crucial than ever.