A transfer pricing study is a formal analysis that tests whether the prices charged in transactions between related parties or connected persons are consistent with the prices that independent, unrelated parties would agree to under comparable conditions. That benchmark is known as the arm’s length principle. The study establishes the facts of each intercompany transaction, selects the most appropriate pricing method, compares the outcome against reliable market data, and records a defensible conclusion that a tax authority can review.
In the UAE, a transfer pricing study is the evidence base that supports a company’s position under the Corporate Tax regime introduced by Federal Decree-Law No. 47 of 2022 and administered by the Federal Tax Authority (FTA). It is what allows a business to demonstrate, rather than merely assert, that its group transactions were priced fairly.
Why a Transfer Pricing Study Matters
When companies within the same group trade with each other, they can set prices internally rather than through open-market negotiation. Without a control, this creates room to shift profit toward lower-tax locations and away from where the real economic activity happens. Transfer pricing rules exist to prevent that outcome and to make sure taxable profit stays aligned with genuine value creation.
A key point in the UAE is that the burden of proof sits with the taxpayer. The FTA does not have to prove that your prices were wrong; you have to be able to show that they were right. A transfer pricing study is how you discharge that burden. Without one, a business is exposed to pricing adjustments, additional tax, interest, and administrative penalties during a review.
What a Transfer Pricing Study Includes
A robust study is not a single document but a structured process. In UAE practice, aligned with the OECD Transfer Pricing Guidelines, it generally moves through the following stages:
1. Functional analysis (FAR analysis)
This maps the Functions performed, Assets employed, and Risks assumed by each party to the transaction. It establishes which entity does what, who owns the valuable assets, and who bears commercial risk. The functional profile drives every later decision, because pricing should follow substance.
2. Industry and economic analysis
The study places the transaction in its commercial and market context: the sector, competitive conditions, and economic factors that a third party would weigh when negotiating a price.
3. Selection of the transfer pricing method
Based on the facts, the study selects the method that most reliably produces an arm’s length result. The UAE recognises the five OECD methods, discussed in detail below.
4. Benchmarking and comparability analysis
This is the analytical core of the study. Using recognised financial databases, the analyst identifies comparable independent companies or transactions and derives the profit margins or prices that unrelated parties actually earn. Where local UAE or GCC comparables are limited, wider regional or international data can be used with appropriate adjustments.
5. Determining the arm’s length range
The comparables produce a range of acceptable results, often expressed as an interquartile range. If the tested transaction falls inside that range, it is treated as arm’s length. If it falls outside, an adjustment may be required.
6. Conclusion and documentation
Finally, the analysis is written up into contemporaneous documentation, typically a Local File and, where required, a Master File, along with the Transfer Pricing Disclosure Form filed with the tax return. This is the deliverable the FTA can ask to see.
The Five Transfer Pricing Methods Recognised in the UAE
Article 34(3) of the UAE Corporate Tax Law adopts the same five methods set out in the OECD guidelines, with no fixed hierarchy between them. The correct method is whichever gives the most reliable arm’s length result for the specific facts. Article 34(4) also permits an alternative method where none of the five can be reasonably applied.
| Method | Typically Best Suited For |
| Comparable Uncontrolled Price (CUP) | The most direct method; used where a near-identical independent price exists for the same goods or services. |
| Resale Price Method | Distributors and resellers that buy from a related party and resell without adding significant value. |
| Cost Plus Method | Manufacturers and service providers; adds an arm’s length mark-up to costs. |
| Transactional Net Margin Method (TNMM) | The most widely used method in UAE practice, because reliable net-margin comparables are more readily available. |
| Profit Split Method | Highly integrated operations or unique, valuable intangibles where contributions are hard to separate. |
The UAE Regulatory Framework and FTA Context
UAE Corporate Tax took effect for financial years starting on or after 1 June 2023, at a standard rate of 9 percent on taxable income above AED 375,000. Transfer pricing is built directly into the law and enforced by the FTA through the EmaraTax portal. The key instruments are:
- Federal Decree-Law No. 47 of 2022: The Corporate Tax Law itself.
- Article 34: establishes the arm’s length principle for transactions with related parties and connected persons.
- Article 35 and Article 36: define related parties and the treatment of payments to connected persons.
- Article 55: sets out the transfer pricing documentation obligations.
- Ministerial Decision No. 97 of 2023: specifies the Master File and Local File requirements and thresholds.
- Cabinet Decision No. 75 of 2023: sets the administrative penalties for non-compliance.
The FTA has confirmed that its regime is generally aligned with the 2022 OECD Transfer Pricing Guidelines, and that where a topic is not addressed in the UAE guidance, taxpayers should refer to the OECD guidelines. The FTA has also begun rolling out an Advance Pricing Agreement (APA) programme, starting with unilateral APAs, giving businesses a route to upfront certainty on complex or recurring transactions.
Who Needs a Transfer Pricing Study in the UAE?
An important distinction: every taxable person with related-party or connected-person transactions must comply with the arm’s length principle, regardless of size. The thresholds below determine only the level of formal documentation required, not whether the principle applies.
Master File and Local File
Under Ministerial Decision No. 97 of 2023, a taxable person must maintain both a Master File and a Local File if it meets either of these conditions in the relevant tax period:
- It is part of a multinational enterprise (MNE) group with total consolidated group revenue of AED 3.15 billion or more; or
- Its own revenue in the tax period is AED 200 million or more.
A useful exception applies: if a group operates only within the UAE with no foreign entities, it is not required to prepare a Master File, although a Local File is still needed where the AED 200 million standalone threshold is met.
Transfer Pricing Disclosure Form
Separately, larger volumes of related-party dealings trigger a disclosure schedule within the Corporate Tax return. Based on FTA guidance and practice, the effective triggers understood in the market are:
| Trigger | Indicative Threshold |
| Aggregate related-party transactions | Above AED 40 million |
| Any individual category (goods, services, financing, IP) | Above AED 4 million |
| Payments or benefits to a connected person and its related parties | Above AED 500,000 |
Businesses that qualify for Small Business Relief are relieved from preparing transfer pricing documentation, but they still cannot ignore the arm’s length principle in how they price transactions.
Study vs Documentation vs Disclosure: Clearing Up the Terms
These three terms are often used interchangeably, but they are distinct:
| Term | What It Is |
| Transfer pricing study | The underlying analysis, including FAR analysis, method selection, and benchmarking, that proves prices are arm’s length. |
| TP documentation (Master File / Local File) | The formal reports that present the study to the FTA when thresholds are met. |
| TP Disclosure Form | A summary of related-party and connected-person transactions filed with the annual Corporate Tax return. |
In short, the study is the analysis, the documentation is how that analysis is written up, and the disclosure form is the annual declaration that flags those transactions to the FTA.
What Happens Without a Proper Study?
Weak or missing transfer pricing analysis carries real exposure:
- Record-keeping penalties under Cabinet Decision No. 75 of 2023: AED 10,000 for each violation, rising to AED 20,000 for a repeated violation within 24 months.
- Pricing adjustments: the FTA can recalculate taxable income, increasing the tax due plus interest.
- Disallowed deductions: management or service fees paid to a related party without an agreement and evidence of services are a common ground for challenge.
- Free zone risk: incorrect pricing can jeopardise Qualifying Free Zone Person status and the 0 percent benefit.
- Deeper scrutiny: records must generally be retained for seven years and produced quickly on request, so gaps invite wider review across future years.
How BCL Globiz Helps
BCL Globiz is a UAE-based accounting and tax advisory firm, part of the BCL Group, with dedicated transfer pricing and benchmarking expertise built specifically around the UAE Corporate Tax regime and the OECD guidelines it adopts. Its transfer pricing team supports businesses across the full lifecycle of a study:
- Mapping related parties and connected persons in line with the Corporate Tax Law, which differs from accounting definitions such as IAS 24.
- Conducting FAR analysis and economic analysis to establish the correct functional profile.
- Running benchmarking studies using recognised global databases to build defensible arm’s length ranges.
- Preparing Master Files, Local Files, and Transfer Pricing Disclosure Forms that meet FTA requirements, along with annual updates.
- Reviewing existing documentation for quality and providing audit-defence support.
For businesses that want their intercompany pricing to hold up under FTA review, BCL Globiz offers end-to-end support. You can learn more on the BCL Globiz Transfer Pricing Services page.
Frequently Asked Questions
Is a transfer pricing study mandatory in the UAE?
The arm’s length principle is mandatory for every taxable person with related-party or connected-person transactions. Full Master File and Local File documentation becomes mandatory once the AED 200 million revenue or AED 3.15 billion group-revenue thresholds are met, but a study of some form is prudent for any business with material intercompany dealings.
What is the difference between a transfer pricing study and a benchmarking study?
A benchmarking study is one component of a transfer pricing study. Benchmarking specifically identifies comparable market data to test a price or margin, while the wider study also covers functional analysis, method selection, and the documented conclusion.
How often should a transfer pricing study be updated?
Documentation should be contemporaneous and current. Financial benchmarks are commonly refreshed annually, while the underlying comparables search is often reviewed at least every few years or whenever the business, its transactions, or market conditions change materially.
Do free zone companies need a transfer pricing study?
Yes. Free zone entities, including Qualifying Free Zone Persons, are subject to the arm’s length principle and the same documentation thresholds. Incorrect pricing can put qualifying status and the 0 percent rate at risk.
What is the arm’s length principle?
It is the standard, set out in Article 34 of the UAE Corporate Tax Law, that transactions between related parties must be priced as they would be between independent parties acting in comparable circumstances.
