Arm’s Length Principle in Transfer Pricing: UAE Guide 2026

Under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), every related-party and connected-person transaction must comply with the arm’s length principle. The Federal Tax Authority (FTA) is actively scrutinising these transactions. Non-compliance carries real financial consequences, including income adjustments, penalties, and potential double taxation.

If you’ve been asking what an arm’s length transaction is and why it matters for your UAE business, this guide covers everything in one place: the definition, legal basis, OECD transfer pricing methods, UAE-specific rules, the tested party and arm’s length range mechanics, related parties versus connected persons, domestic mainland and free zone transactions, dispute prevention and resolution tools, practical examples with AED figures, a step-by-step compliance process, and penalties for getting it wrong.

What Is the Arm’s Length Principle?

Here’s a simple way to think about it. Company A sells goods to its subsidiary, Company B. The arm’s length principle states that the price should be the same as what Company A would charge an unrelated Company C under similar circumstances.

This principle originated in international tax law. It is codified in Article 9 of the OECD Model Tax Convention. More than 140 countries follow it as the global standard for transfer pricing, including the UAE.

It is not a theoretical concept. It is a legally enforceable requirement with real financial consequences. When your intercompany prices don’t reflect what independent parties would agree to, tax authorities have the power to adjust your taxable income accordingly.

Arm’s Length Principle vs. Arm’s Length Transaction

The principle is the rule. It is the standard requiring related-party transactions to be priced as if between independent parties.

The transaction is the application. It is any specific deal conducted at arm’s length, either because the parties are genuinely independent, or because the pricing reflects what independent parties would agree to. An arm’s length transaction is simply a deal that meets this standard.

Why Does the Arm’s Length Principle Matter?

Four reasons your business should take this seriously:

• Prevents profit shifting: Without the arm’s length principle, multinational groups could manipulate intercompany prices to move profits to low-tax jurisdictions. This erodes the tax base of countries where real economic activity occurs. The OECD estimates that base erosion and profit shifting (BEPS) costs governments USD 100 to 240 billion in lost revenue annually, roughly 4 to 10 percent of global corporate income tax revenue.
• Ensures fair taxation: Each jurisdiction taxes the profits genuinely earned within its borders. This creates a level playing field between businesses that operate through related entities and those that don’t.
• Protects businesses from penalties: Compliance shields you from tax authority challenges, income adjustments, penalties, and the risk of double taxation. Getting it right up front is far cheaper than fixing it after an audit.
• Critical for UAE businesses: With UAE Corporate Tax at 9 percent fully operational, the FTA actively scrutinises related-party transactions. Non-compliance is not a theoretical risk; it is a practical one with financial consequences that can hit your bottom line directly.

Industries commonly affected include management consultancies with overseas parent companies, IT services firms with intercompany agreements, ecommerce businesses with related-party supply chains, and trading companies purchasing from related manufacturers.

OECD Transfer Pricing Methods: the Five You Must Know

UAE transfer pricing rules align with the OECD Transfer Pricing Guidelines and accept five recognised methods, consistent with Article 34(3) of the Corporate Tax Law. The FTA expects you to choose the most appropriate method for the transaction tested, and there is no strict hierarchy among the five.

Where none of the five methods can be reasonably or reliably applied, Article 34(4) allows the use of another method, provided it still satisfies the arm’s length principle.

Tested Party Selection: Why It Matters

Before any transfer pricing method can be applied, you need to decide which party in the transaction is the tested party. This is the entity whose results will actually be benchmarked against independent comparables.

The tested party is normally the participant with the simpler functional profile, meaning the party that does not own valuable intangibles, does not take on significant risk, and performs relatively routine functions. A UAE distributor buying finished goods from a related overseas manufacturer, for example, is usually a cleaner tested party than the manufacturer itself, because distribution functions and risks are easier to find independent comparables for.

Getting this wrong has real consequences. If you select the wrong tested party:

• Reliable comparable data becomes harder to find, since you are now trying to benchmark the more complex party in the transaction.
• The benchmarking study becomes an easy target in an FTA review, since tested party selection is typically the first thing an examiner checks before even looking at the numbers.
• The arm’s length range you calculate may not actually reflect the transaction you are testing.

Two questions decide tested party selection: which party’s functions, assets, and risks are least complex, and for which party is the most reliable comparable data available. Both should point in the same direction. When they do not, the functional analysis needs another look before you proceed to benchmarking.

Transfer Pricing Documentation Requirements in the UAE

The UAE follows a three-tiered documentation framework, set out in Article 55 of the Corporate Tax Law and Ministerial Decision No. 97 of 2023. Understanding the thresholds precisely, and how the two tests interact, is essential for compliance.

Source: Ministerial Decision No. 97 of 2023 (Master File and Local File) and Cabinet Decision No. 44 of 2020 (CyBC).

A distinction worth getting right: the AED 3.15 billion figure is a consolidated MNE group revenue test, while the AED 200 million figure is the taxable person’s own entity-level revenue. Either one, on its own, triggers both the Master File and the Local File obligation. There is one narrow exception: a UAE-only group, meaning no entity anywhere in the ownership chain sits outside the UAE, is not required to prepare a Master File even if its standalone revenue clears AED 200 million, because the Master File obligation is specifically tied to MNE group status. That same group still needs a Local File once it clears AED 200 million.

Preparing Master Files and Local Files requires specialised expertise, particularly in identifying reliable comparable data for UAE-specific transactions. Access to benchmarking-study databases like Bureau van Dijk (Orbis) or S&P Capital IQ tends to be expensive, with costs that can be prohibitive for smaller firms.

How to Calculate and Use the Arm’s Length Range (IQR)

Applying a transfer pricing method rarely produces a single correct price. It produces a range, because independent companies performing similar functions will naturally show a spread of margins, prices, or returns.

The accepted way to narrow this spread into a usable benchmark is the interquartile range (IQR), the band running from the 25th percentile to the 75th percentile of the results from your set of comparable companies or transactions. The IQR discards the most extreme quarter at each end of the data set, on the basis that outliers are more likely to reflect comparability defects than genuine arm’s length outcomes.

In practice, this looks like:

1. Build the comparable set. Run a benchmarking search and screen for financially and functionally comparable independent companies.
2. Calculate the range. Order the results, typically an operating margin, gross margin, or similar profit level indicator, and take the 25th to 75th percentile band. This is your arm’s length range.
3. Test the actual result. Compare the tested party’s actual result against the range.
4. Act on the outcome. If the result falls inside the IQR, the pricing is considered arm’s length and no adjustment is required. If the result falls outside the IQR, the expectation, consistent with the OECD approach, is a median adjustment: the taxpayer’s result is brought to the 50th percentile of the range rather than merely to the nearest edge of it.

Under Article 34(7) of the Corporate Tax Law, any point within the arm’s length range is considered acceptable, so a result sitting inside the IQR does not need to match the median exactly. The median adjustment principle applies specifically to results that fall outside the range.

One nuance worth flagging: where the tested party performs more complex functions or carries more risk relative to the comparable set, a defensible position often sits toward the upper end of the range rather than the median, and the reverse holds for simpler functional profiles. This is where comparability adjustments become relevant.

Comparability Adjustments and Why They Change the Result

Even a well-screened set of comparables will not match the tested party exactly. Independent companies differ in accounting policies, working capital levels, capacity utilisation, and contract terms, even when their broad functions look similar on paper.

Comparability adjustments correct for these differences before the arm’s length range is finalised. Common examples include:

• Working capital adjustments, to correct for differences in receivables, payables, and inventory levels between the tested party and comparables.
• Accounting policy adjustments, where comparables use different depreciation, inventory valuation, or cost classification conventions.
• Segmentation adjustments, where a comparable company’s financials cover multiple business lines and only one segment is genuinely comparable.

Why these matters for the result: an unadjusted range can understate or overstate the true arm’s length outcome, which means the taxpayer either overpays tax on a distorted benchmark or leaves an under-priced transaction exposed to an FTA challenge. Every adjustment applied should be documented with the reasoning behind it, since the methodology, not just the final number, is what an FTA reviewer will scrutinise first.

What Happens If You Don’t Comply? Penalties and Risks

Five categories of risk apply when your transactions aren’t at arm’s length:

• FTA income adjustments. Under Article 34 of the Corporate Tax Law, the FTA can adjust your taxable income to reflect arm’s length pricing. Your tax bill increases even if you’ve already filed and paid.
• Administrative penalties. Non-compliance with transfer pricing documentation requirements triggers FTA administrative penalties under the Tax Procedures Law. Penalties can include fixed amounts for late or incorrect filings and percentage-based penalties on underpaid tax.
• Double taxation. If the FTA adjusts your UAE income upward, the counterparty’s jurisdiction may not provide a corresponding downward adjustment. The same income gets taxed in both countries.
• Loss of QFZP status. For free zone entities, non-compliance with the arm’s length principle could result in losing the 0 percent tax rate. You’d face the standard 9 percent rate on all income, not just the non-compliant transactions.
• Reputational and operational risk. Audit findings can damage relationships with investors, banks, and business partners. The downstream effects often exceed the direct financial penalties.

Related Parties vs. Connected Persons: The Article 34 vs. Article 36 Split

Related-party and connected-person transactions are often mentioned together, and for good reason: the Corporate Tax Law treats them as two distinct categories with two different tests.

Related parties: Article 35 defines the relationship, Article 34 sets the pricing test

A related party is another person connected to the taxable person through ownership, control, or kinship, for example a parent company, a subsidiary, a fellow subsidiary under common control, or close relatives holding a defined ownership stake. Transactions with related parties must meet the arm’s length principle under Article 34, meaning the full five-method framework, functional analysis, and benchmarking discussed above all apply.

Connected persons: Article 36

A connected person is typically an owner, director, officer, or a person otherwise closely connected to the taxable person, someone who is not necessarily a related party in the ownership sense, but who is positioned to receive payments or benefits from the business on non-commercial terms. Article 36 applies a narrower market value test: a payment or benefit to a connected person is only deductible if it reflects the market value of what was actually provided and is incurred wholly and exclusively for business purposes.

The practical difference: Article 34 governs the pricing of a transaction between related parties. Article 36 governs the deductibility of a payment to a connected person. A payment can fail the Article 36 test, and simply be disallowed as a deduction, without necessarily triggering the full transfer pricing method-and-benchmarking exercise required under Article 34, though in practice many businesses run the same benchmarking discipline across both categories to stay defensible.

Both categories must be disclosed. Related-party transactions are disclosed where the aggregate amount exceeds the applicable disclosure threshold; connected-person payments are disclosed separately once they exceed their own threshold. Missing either category on the Disclosure Form is a common audit trigger.

Domestic UAE Transactions: Mainland and Free Zone Entities

A recurring misconception is that transfer pricing is a cross-border issue only. It is not. The arm’s length principle applies to domestic transactions between UAE entities just as much as it applies to cross-border ones, and this matters most where a mainland entity and a related Qualifying Free Zone Person (QFZP) sit on either side of a transaction.

Why domestic transactions carry real risk:

• Different tax rates on either side: A QFZP earning qualifying income is taxed at 0 percent, while a related mainland entity is taxed at the standard 9 percent rate. Any pricing that shifts profit toward the 0 percent side of the group, even unintentionally, is exactly the kind of outcome the arm’s length principle exists to prevent.
• QFZP status is conditional on compliance: A QFZP must apply the arm’s length principle to its related-party transactions, maintain the relevant documentation, and be able to demonstrate this on request. Falling short does not just risk an income adjustment, it risks the 0 percent rate itself, with the entity’s income becoming taxable at 9 percent from the start of the tax period in which it stopped qualifying.
• Group-only structures are not automatically exempt: Even where every entity in a group is UAE-resident, with no foreign parent or subsidiary anywhere in the chain, the Master File exemption available to purely domestic groups does not extend to the Local File or to the underlying pricing obligation. Entities above the AED 200 million threshold still need a Local File, and every entity, regardless of size, still needs its intercompany pricing to be defensible.
• Tax Groups are the one real exception: Where entities have been approved by the FTA to form a Tax Group and are treated as a single taxable person, the arm’s length principle does not apply to transactions between members of that group in the same way. A QFZP, however, cannot join a CT Tax Group, so this exception has limited relevance for the mainland or free zone scenario specifically.

For businesses running a mainland trading entity alongside a free zone service company, or a free zone holding structure with a mainland operating subsidiary, this is usually where the largest and most overlooked exposure sits.

APA and MAP: Preventing and Resolving Transfer Pricing Disputes

Most of the compliance discipline covered above is about getting the pricing right before you file. Two further mechanisms exist for situations where certainty or a dispute needs to be addressed directly with the tax authority.

Advance Pricing Agreement (APA)

An APA is an agreement between a taxable person and the FTA that fixes, in advance, the method and criteria for determining the arm’s length price of specified controlled transactions over a set future period. The FTA formalised this through its Corporate Tax Guide on Advance Pricing Agreements, released 30 December 2025, introducing the programme in phases:

• Unilateral APA (UAPA): an agreement between the taxpayer and the FTA only, binding for UAE Corporate Tax purposes but not on any foreign tax authority. Applications for domestic controlled transactions have been accepted since December 2025; a start date for cross-border transactions is to be announced separately.
• Bilateral or Multilateral APA (BAPA/MAPA): an agreement involving the FTA and one or more foreign competent authorities, reached through the Mutual Agreement Procedure. This route gives certainty in more than one jurisdiction at once but is being introduced in a later phase.

APAs are aimed at transactions with real complexity or uncertainty. As a general benchmark, the FTA expects the total arm’s length value of the controlled transactions covered to be at least AED 100 million per tax period, alongside genuine uncertainty in how the arm’s length price should be determined.

Mutual Agreement Procedure (MAP)

Where a dispute has already arisen, typically because the FTA has adjusted a UAE entity’s taxable income and the counterparty’s home jurisdiction has not made a matching downward adjustment, MAP is the treaty-based mechanism for resolving it. The UAE Ministry of Finance issued formal MAP guidance in June 2025, setting out the process for taxpayers to request that competent authorities in both jurisdictions negotiate a resolution and avoid double taxation on the same income.

The distinction worth remembering: an APA prevents a dispute by agreeing the pricing approach up front; MAP resolves a dispute that has already materialised, usually after an adjustment has been made. Neither replaces the underlying obligation to price transactions at arm’s length; both exist to manage the uncertainty and risk of double taxation around that obligation.

How to Apply the Arm’s Length Principle: Step by Step

1. Identify all related-party and connected-person transactions

Review every intercompany agreement, service contract, loan, IP licence, cost-sharing arrangement, and goods transfer. Create a comprehensive list. Missing a transaction is a common audit trigger for related-party transactions in the UAE.

2. Conduct a functional analysis for each transaction

Document the functions each party performs, the assets each party uses (including intangible assets), and the risks each party assumes. This analysis determines which party is the tested party and which transfer pricing method fits best.

3. Find comparable transactions or companies

Start with internal comparables where they exist. Where the taxable person, or a party to the transaction, also transacts with genuinely independent third parties on similar terms, those transactions are generally the most reliable evidence available, since they come from the same company under the same accounting policies, removing most of the comparability adjustments that external comparables require.

Where internal comparables are not available or not reliable enough on their own, move to external sources. The typical UAE search strategy runs in this order:

1. Local (UAE) comparables first, since local market conditions are the most relevant. The available data set in the UAE and wider GCC is genuinely limited compared to the US or Europe, a real and recurring constraint reported by practitioners in the region.
2. Regional comparables next, where local data is insufficient, expanding the search across the broader GCC or Middle East.
3. Global comparables last, where neither local nor regional data yields a reliable set, at which point regional adjustments for currency, market size, and economic conditions typically need to be applied and documented.

Commercial databases such as Bureau van Dijk (Orbis) and S&P Capital IQ remain the standard sources for external comparables searches, though access costs can be a genuine barrier for smaller businesses. The FTA has not mandated a specific database, but has indicated it may request access to whichever database was used, so the choice of source and the search parameters both need to be documented alongside the results.

The benchmarking study typically involves six stages: defining the tested transaction, selecting the tested party, searching for comparables, screening, calculating the arm’s length range, and documenting results.

4. Select the most appropriate transfer pricing method

Based on the transaction’s nature, available comparable data, and your functional analysis, choose from the five OECD methods. Document your reasoning.

5. Set or test the transfer price

Either set prices prospectively, before the transaction, based on your analysis, or test existing prices retrospectively against the arm’s length range from your benchmarking study.

6. Prepare and maintain documentation

Prepare the Disclosure Form, and if applicable, the Master File and Local File. Ensure transfer pricing documentation requirements are met contemporaneously, at or near the time of the transaction, not after an FTA inquiry.

7. Review and update annually

Arm’s length conditions change as markets, costs, and business models evolve. Transfer pricing documentation must be refreshed each tax period to remain defensible.

Many UAE businesses, particularly those encountering transfer pricing requirements for the first time, find that steps three through six require specialised expertise and access to benchmarking databases. Working with an experienced transfer pricing advisor can significantly reduce compliance risk and time investment.

Evidence Checklist: Methodology Selection and Benchmarking Studies

A defensible transfer pricing position rests on documented evidence at every stage, not just a final number. At minimum, a benchmarking study and method selection should be able to show:

• Functional analysis covering the functions performed, assets used (including intangibles), and risks assumed by each party, with the tested party identified and the reasoning for that selection stated explicitly.
• Method selection rationale, explaining why the chosen method is the most appropriate for the transaction tested, and why alternatives were rejected.
• Search strategy documentation, recording the database used, search date, search terms, and the local-to-global sequencing applied.
• Screening criteria, with clear accept or reject reasoning for every company considered, not just the ones retained.
• Comparability adjustments applied, with the basis for each one, whether working capital, accounting policy, or segmentation.
• The arm’s length range itself, showing the full comparable set, the IQR calculation, and where the tested party’s actual result falls within it.
• Contemporaneous preparation, meaning the documentation is prepared at or near the time of the transaction, not reconstructed after an FTA inquiry has already started.

Where SMEs Get Caught: BCL Globiz Experience

For SME clients, the arm’s length area that creates the largest CT-adjustment risk is intra-group management fees paid to a parent company in a low-tax jurisdiction. The FTA expects a written services agreement, evidence the services were actually rendered, and a defensible benchmark for the markup. Most clients arrive with none of the three.

In one engagement, restructuring an undocumented AED 1.2 million annual management charge into a benchmarked cost-plus 5 percent arrangement reduced the CT exposure on that single line item by approximately AED 95,000 per year and removed an audit-risk flag from the file.

Arm’s Length Principle: Common Challenges for UAE Businesses

• Limited comparable data in the region: The UAE and broader GCC have limited publicly available financial data compared to the US or Europe. Finding reliable local comparables for benchmarking studies often requires expanding the search to comparable markets or applying regional adjustments. This is a recurring constraint reported by transfer pricing practitioners working in the GCC.
• Free zone complexity: Transactions between free zone entities and mainland entities, or between two free zone entities, require careful analysis. QFZPs must demonstrate that their related-party transactions are at arm’s length to maintain their 0 percent tax rate, adding an extra compliance layer that many businesses underestimate.
• Intra-group services and cost allocations: Determining whether management fees, shared service charges, and cost allocations meet the arm’s length standard is one of the most common areas of dispute globally. The key question: is there a genuine service, and would an independent party pay for it?
• First-time compliance burden: Many SMEs in the UAE are encountering transfer pricing requirements for the first time. Documentation requirements can feel overwhelming, especially for businesses that have operated informally or without structured intercompany agreements.
• Evolving FTA guidance: The UAE’s transfer pricing framework continues to mature, most recently with the APA programme and formal MAP guidance. FTA guidance and interpretations develop over time, requiring businesses to stay current with regulatory updates.

Ensuring Arm’s Length Compliance in the UAE

The arm’s length principle is the cornerstone of transfer pricing worldwide and a legally binding requirement under the UAE Corporate Tax Law. Compliance requires identifying related-party and connected-person transactions, selecting the right tested party, choosing an appropriate method, calculating and defending an arm’s length range, setting defensible prices, and maintaining contemporaneous documentation. Proactive compliance, getting it right from the start, is significantly less costly than reacting to FTA adjustments and penalties after the fact.

For businesses navigating related-party transactions in the UAE, working with an experienced transfer pricing advisor ensures compliance, minimises risk, and avoids costly FTA adjustments. BCL Globiz provides end-to-end transfer pricing support, from benchmarking studies and documentation to ongoing compliance, with a dedicated account manager, transparent pricing, and SOP-driven delivery.

Frequently Asked Questions

What is the arm’s length principle in simple terms?

The arm’s length principle says that when two related companies do business with each other, the price they charge must be the same as what they would charge a completely unrelated company. If your Dubai company sells consulting services to your sister company in London, the fee should match what you’d charge any independent client for the same work. It’s the global standard for pricing related-party transactions fairly.

What is the difference between an arm’s length transaction and a non-arm’s length transaction?

An arm’s length transaction occurs between independent parties, or between related parties where the price reflects what independents would agree to. A non-arm’s length transaction involves related parties where the price is influenced by the relationship, such as selling below market rate to shift profits. Non-arm’s length transactions can trigger FTA income adjustments and administrative penalties under UAE law.

What happens if my transactions are not at arm’s length in the UAE?

The FTA can adjust your taxable income to reflect arm’s length pricing under Article 34 of the Corporate Tax Law. This may result in additional tax liability, FTA administrative penalties, and potential double taxation if the counterparty’s jurisdiction doesn’t provide a corresponding adjustment. Free zone entities risk losing their QFZP status entirely. Contemporaneous documentation is your strongest defence.

What is the difference between a related party and a connected person?

A related party is connected to you through ownership, control, or kinship, and transactions with related parties must meet the full arm’s length pricing test under Article 34. A connected person is typically an owner, director, or officer of the business, and payments to a connected person are tested under the narrower market value rule in Article 36, which governs whether the payment is deductible rather than how a full transaction should be priced.

Do free zone companies need to comply with the arm’s length principle?

Yes, without exception. Even QFZPs benefiting from the 0 percent corporate tax rate must ensure all transactions with related parties and connected persons, including domestic transactions with related mainland entities, are priced at arm’s length. Non-compliance could jeopardise qualifying status, potentially subjecting all income to the standard 9 percent rate.

Can a business get upfront certainty on its transfer pricing from the FTA?

Yes. The FTA introduced an Advance Pricing Agreement (APA) programme through its Corporate Tax Guide released in December 2025. A Unilateral APA lets a taxpayer agree the pricing method for specified transactions with the FTA in advance, currently available for domestic controlled transactions, with cross-border applications to follow. Where a dispute has already arisen, the Mutual Agreement Procedure, under formal Ministry of Finance guidance since June 2025, allows the UAE and a treaty partner to resolve it and avoid double taxation.

What transfer pricing documentation do UAE businesses need to maintain?

Three tiers apply. First, the Transfer Pricing Disclosure Form, required once aggregate related-party transactions exceed AED 40 million (AED 4 million per category) or connected-person payments exceed AED 500,000, regardless of entity revenue. Second, the Master File and Local File, required where the taxable person’s own revenue is AED 200 million or more, or where it belongs to an MNE Group with consolidated revenue of AED 3.15 billion or more, either condition on its own is sufficient to trigger both files. Third, the Country-by-Country Report, required for groups exceeding AED 3.15 billion consolidated revenue. All documentation must be contemporaneous and available upon FTA request.

Official FTA and OECD Reference List

For primary-source verification, the following official references underpin the framework discussed in this guide:

• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Articles 34 to 36, 55)
• Ministerial Decision No. 97 of 2023 on Requirements for Maintaining Transfer Pricing Documentation
• Cabinet Decision No. 44 of 2020 on Country-by-Country Reporting
• FTA Transfer Pricing Guide (October 2023, as updated)
• FTA Corporate Tax Guide on Advance Pricing Agreements, CTGAPA1 (December 2025)
• UAE Ministry of Finance Mutual Agreement Procedure Guidance (June 2025)
• FTA Corporate Tax Guide for Free Zone Persons, CTGFZP1 (May 2024)
• OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022 edition)

Quick Summary

The arm’s length principle requires every related-party and connected-person transaction under UAE Corporate Tax Law to be priced as if the parties were independent. This guide covers the full compliance picture, from the legal basis through to the FTA’s newest dispute prevention tools. Key points:

• Legal basis: Codified in Article 9 of the OECD Model Tax Convention and embedded in UAE law under Article 34 of Federal Decree-Law No. 47 of 2022, applying to all related-party and connected-person transactions, domestic and cross-border.
• Five accepted methods: CUP, Resale Price, Cost Plus, TNMM, and Profit Split, chosen based on the transaction and available comparable data, with no strict hierarchy between them.
• Tested party and arm’s length range: The tested party is the simpler side of the transaction to benchmark; results are measured against an interquartile range (IQR), with a median adjustment expected if the result falls outside it.
• Documentation: A Disclosure Form is required once aggregate related-party transactions exceed AED 40 million, or connected-person payments exceed AED 500,000, regardless of entity revenue. A Master File and Local File are triggered once either the entity’s own revenue reaches AED 200 million or its MNE Group’s consolidated revenue reaches AED 3.15 billion, either condition on its own is sufficient. CyBC applies above AED 3.15 billion consolidated group revenue.
• Related parties vs. connected persons. Related parties (Article 35) face the full arm’s length pricing test under Article 34; connected persons (Article 36) face a narrower market value and deductibility test.
• Domestic transactions count too: Transactions between UAE mainland and free zone entities must still be priced at arm’s length, and non-compliance can cost a QFZP its 0 percent tax rate.
• New dispute tools: The FTA’s Advance Pricing Agreement (APA) programme, launched December 2025, and the Ministry of Finance’s Mutual Agreement Procedure (MAP) guidance, issued June 2025, now give businesses formal routes to prevent and resolve transfer pricing disputes.
• Non-compliance risk: Income adjustments, administrative penalties, double taxation, and loss of QFZP status are all real consequences, with contemporaneous documentation as the strongest defence.