Navigating UAE transfer pricing regulations can be complex, with evolving compliance requirements and strict disclosure obligations. Non-compliance can result in hefty penalties and increased scrutiny from tax authorities.
At BCL Globiz, we provide comprehensive Transfer Pricing (TP) solutions to help businesses stay compliant while optimizing tax efficiency. Our expert services include benchmarking studies, related party transaction analysis, and TP documentation, covering Local File, Master File, Country-by-Country Reporting (CbCR), and TP Disclosure Forms.
With our deep understanding of UAE tax laws and the latest regulatory updates, we deliver accurate, up-to-date, and tailored TP strategies—empowering businesses to manage risks, enhance compliance, and achieve tax optimization.
We offer a complete suite of Transfer pricing advisory services, including:
Conducting comprehensive benchmarking analysis to ensure your Related party Connected Person transactions align with the Arm’s length principle (ALP)
Evaluating Corporate Tax implications for related party transactions and identifying strategic tax planning opportunities.
Advising on tax-efficient structuring for transactions with Connected persons including Benchmarking for Salary transactions.
Accurately preparing and filing the Transfer Pricing Disclosure Form in line with FTA requirements and deadlines.
Preparing the Local File (Transfer Pricing Study) with detailed documentation of intra-group transactions to comply with UAE Transfer Pricing rules.
Drafting the Master File to provide a global overview of your multinational group’s business operations and transfer pricing policies.
Assisting in the preparation and submission of CbCR reports, ensuring compliance with OECD and local regulations.
Benchmarking Analysis Report (Per Activity)
Mandatory for transaction entered with Related Party & Connected Person
Salary Benchmarking for KMP
(Mandatory for Salaries paid to Connected Person or KMPs)
AED 13,125
AED 10,500
Bechmarking Analysis Report (Per Activity)
Salary Bechmarking for KMP
AED 13,125
AED 10,500
Total
Discounted Price
AED 23,625
AED 15,750
Benchmarking Analysis Report
(Per Activity)
Mandatory for transaction entered with Related Party & Connected Person
AED 13,125
Salary Benchmarking for KMP
(Mandatory for Salaries paid to Connected Person or KMPs)
AED 10,500
Bechmarking Analysis Report (Per Activity)
AED 13,125
Salary Bechmarking for KMP
AED 10,500
Total -
AED 23,625
Discounted Price - AED 15,750
1 Benchmarking Services
Conducting a benchmarking study or comparability analysis is essential for businesses to apply the arm’s length principle (ALP) effectively when determining transfer pricing. This process relies on a structured comparison between a company’s-controlled transactions (the “tested party”) and similar transactions undertaken by independent entities (the “comparables”) under comparable circumstances.
A benchmarking study is instrumental in establishing an arm’s length range of prices for controlled transactions. It enables businesses to compare their pricing strategies with industry standards, helping them select the most appropriate transfer pricing method and determine an arm’s length price (ALP) or profit level indicator (PLI).
MNEs use TP benchmarking to ensure related party transactions meet the arm’s length standard. Experts provide reliable TP analysis for compliance.
MNEs and their associate entities conduct transfer pricing benchmarking studies to ensure that related party transactions comply with the arm’s length principle. This analysis helps businesses validate their pricing strategies and meet regulatory requirements.
Establishes defensible intercompany pricing using independent comparables.
Provides a statistical price range, reducing tax authority disputes.
Serves as strong evidence for compliance, minimizing penalties.
A TP benchmarking study involves analyzing controlled transactions (related party dealings) and identifying uncontrolled transactions (independent third-party transactions) for comparison. This process helps assess whether intercompany pricing aligns with the arm’s length principle.
Seeking guidance from TP professionals ensures accuracy, compliance, and defensibility in tax audits.
A TP benchmarking study analyzes related party transactions by comparing them with similar transactions between independent entities. It helps determine whether the pricing aligns with the arm’s length principle (ALP) and regulatory standards.
A TP benchmarking study aims to analyse market conditions and identify comparable third-party transactions to assess transfer pricing compliance. It helps establish a range of values, such as the arm’s length price (ALP) or mark-up range, while considering relevant economic and industry factors influencing such transactions.
Benchmarking ensures that intercompany transactions comply with tax regulations, reducing the risk of TP adjustments, penalties, or audits by tax authorities. It also helps businesses establish fair pricing for related party transactions.
TP benchmarking relies on financial databases, industry reports, and public company filings to identify independent comparables that reflect market-driven pricing for similar transactions.
While TP benchmarking is generally conducted annually, updates may be required if there are significant business changes, regulatory updates, or tax authority requirements.
2 Related Party
A related party refers to an individual or entity with an established relationship with a business subject to the UAE Corporate Tax (CT) framework. This relationship may arise through ownership, control, or kinship (for individuals).
To ensure compliance, taxpayers must identify their related parties as defined in Article 35 of the UAE CT Law, with additional guidance provided in the UAE TP Guidelines. It is crucial to recognize that the definition of related parties under UAE TP regulations differs from the criteria set out in International Accounting Standard (IAS) 24: Related Party Disclosures.
These differences impact how related parties are identified and treated under each framework. Consequently, businesses operating in the UAE should conduct a thorough assessment based on UAE TP rules rather than relying solely on financial statement disclosures or global TP policies.
Meaning of Related Party as per UAE Corporate Tax
In UAE Corporate Tax law, related parties include individuals or entities connected by ownership, control, or kinship up to the fourth degree, with 50% or more common ownership or control. This ensures arm’s length pricing in transactions, preventing tax avoidance. Accurate reporting is essential for compliance.
All Taxable Persons must complete this schedule in the TP disclosure form, if the total value of transactions with Related Parties, as recorded in the Financial Statements or at Market Value, exceeds AED 40 million.
Once this threshold is met, each transaction type exceeding AED 4 million must be disclosed, covering categories such as goods, services, intellectual property, assets, and liabilities. Intercompany dividends are excluded from this disclosure. Gross income (revenue) and expenses should be reported separately, aggregated by transaction type for each Related Party.
For each reportable transaction, companies must:
A related party includes individuals and entities connected through kinship, ownership, or control. This can include family members up to the fourth degree, companies with 50% or more common ownership or control, permanent establishments (PEs), partners in unincorporated partnerships, and trust-related entities.
Related party transactions must be disclosed for tax compliance and transfer pricing regulations. They ensure transactions are conducted at arm’s length, preventing profit shifting and tax avoidance.
Control is the ability to influence another entity’s financial or operational decisions, which includes:
Yes, transactions between related parties must comply with transfer pricing regulations, ensuring they reflect fair market value. However, specific exemptions may apply based on jurisdictional tax laws.
Businesses must maintain transfer pricing documentation, including:
If transactions are not conducted at arm’s length, tax authorities may adjust taxable income, leading to penalties, additional tax liabilities, or increased scrutiny during audits.
3 Connected Persons
Transfer pricing (TP) rules apply to Connected Persons in the UAE primarily to prevent tax base erosion. The UAE’s definition of “connected persons,” as outlined in Article 36 of the Corporate Tax Law, is broader than the typical “Related Party” definition found in many other countries. It encompasses not only ownership and control but also close personal and familial ties.
This unique approach is likely due to the absence of personal income tax in the UAE. Without personal income tax, there’s a risk that business owners might try to reduce their corporate tax liability by artificially inflating payments to themselves or individuals connected to them. These excessive payments could be disguised as salaries, bonuses, or other expenses, effectively shifting profits from the taxable business to the individual, where they would escape taxation. Therefore, the FTA mandates a thorough review of transactions with connected persons to ensure they comply with the arm’s length principle and maintain the integrity of the corporate tax base.
Meaning of Connected Person as per UAE Corporate Tax
Connected persons refer to individuals or entities with a close relationship to a business, including owners, directors, partners, and their relatives, whose transactions may impact the company’s taxable income.
Disclosure Requirement
The Connected Persons Schedule in the TP disclosure form applies when total payments or benefits to a Connected Person and its Related Parties exceed AED 500,000. It covers key transactions under Article 36 of the Corporate Tax Law, requiring disclosure of the service type, payment amount, and market value. Any pricing deviations must be reported, with necessary adjustments as per FTA regulations.
wner (An owner of a Taxable Person refers to any natural person who directly or indirectly holds an ownership interest in the Taxable Person or exercises control over it, including its operations)
Director or Officer of the Taxable Person.
A Related Party of any of the Persons referred to (a) & (b) mentioned above.
Where the Taxable Person is a partner in an Unincorporated Partnership, a Connected Person is any other partner in that same Unincorporated Partnership, and any Person that is a Related Party of that partner.
Payments to Related Parties and Connected Persons in the UAE are tax-deductible if they meet key conditions:
– they must follow the Arm’s Length Principle; and
– be wholly for business purposes, and not be capital in nature (except specific cases like pension contributions).
A Need-Benefit Analysis is required, with proper documentation such as contracts, ledgers, and justifications. Covered payments include salaries, bonuses, pensions, loan interest, allowances, and other employment-related benefits.
Disclosure ensures compliance with Corporate Tax Law (Article 36) by verifying that transactions are conducted at market value, preventing tax avoidance and ensuring fair taxation.
Companies must disclose the transaction type, payment or benefit value, and market value equivalent, along with any necessary tax adjustments if pricing differs from market standards.
If the transaction price deviates from market value, the Federal Tax Authority (FTA) may adjust taxable income, potentially leading to additional tax liabilities or penalties.
Companies should maintain accurate documentation, conduct regular transfer pricing reviews, and seek professional tax guidance to ensure transactions meet compliance requirements.
4 TP Disclosure Form
The Federal Tax Authority (FTA) has recently revised the Corporate Tax (CT) return form, introducing key updates to the Transfer Pricing Disclosure Form (TP Disclosure Form). Under the new requirements, taxable persons must report transactions involving Related Parties and Connected Persons within the TP Disclosure Form.
As part of the UAE’s Corporate Tax framework, the TP Disclosure Form is a critical component of the CT return, ensuring transparency in related-party dealings and influencing the assessment of a taxable person’s liabilities.
It is important to note that the TP Disclosure Form is not a separate submission but an integrated section within the CT return. These additional disclosures are essential for compliance and form an integral part of the overall tax filing process.
The Transfer Pricing Disclosure Form (TP Form) is a mandatory component of the UAE Corporate Tax Return, requiring businesses to disclose transactions with Related Parties and Connected Persons. It ensures transparency in transfer pricing and helps the Federal Tax Authority assess tax liabilities.
Important Parameters for TP Disclosure Form
1. Arm’s Length Principal Compliance
2. Thresholds for Reporting
3. TP Adjustments & Compliance
4. Applicability of TP Regulations
5. Exemptions & Special Cases
The TP Disclosure Form serves as a critical component of the UAE Corporate Tax regime, reinforcing compliance with the arm’s length principle. It mandates transparency in intra-group transactions and ensures that taxable persons appropriately document their related party dealings, preventing profit shifting and tax base erosion.
A taxable person must complete the TP Disclosure Form if total transactions with Related Parties exceed AED 40 million or if individual transaction categories—such as goods, services, or financial transactions—exceed AED 4 million each. Additionally, payments or benefits to Connected Persons must be disclosed if they surpass AED 500,000 per recipient.
The information disclosed in the TP Disclosure Form provides the Federal Tax Authority (FTA) with insights into potential transfer pricing risks. Businesses with significant related party transactions may face increased scrutiny, particularly if pricing practices deviate from the arm’s length principle or if insufficient economic substance is demonstrated.
Although free zone entities may benefit from a 0% corporate tax rate on qualifying income, they are still required to comply with transfer pricing regulations. This includes preparing adequate documentation to substantiate that transactions with Related Parties and Connected Persons adhere to the arm’s length principle, ensuring compliance with UAE tax laws.
The TP Disclosure Form requires more than just transaction-level disclosures; it necessitates economic justification for the pricing of intercompany transactions. Entities must ensure that their pricing methodologies align with OECD guidelines and that they have supporting documentation to withstand potential tax authority inquiries.
Misreporting or failure to disclose relevant transactions can lead to significant penalties, ranging from financial fines to potential tax audits and adjustments. Entities that fail to comply with TP documentation requirements may also face increased scrutiny from the FTA, potentially impacting their tax positions and overall corporate governance standing.
5 Local File
The Local File is a crucial part of UAE’s transfer pricing documentation, outlining a taxpayer’s-controlled transactions for a specific tax period. Businesses must prepare it if their group revenue exceeds AED 3.15 billion or their taxable revenue surpasses AED 200 million. It must include details about the local entity, key controlled transactions, and relevant financial data. As per Ministerial Decision No. 97 of 2023 and UAE TP guidelines, certain transactions require documentation to comply with the Arm’s Length Principle. These include dealings with non-residents, exempt persons, and entities under different corporate tax rates (e.g., Qualifying Free Zone Persons).
The Local File contains key details for transfer pricing analysis, specifically covering material transactions between a local affiliate and its associated enterprises across different jurisdictions, ensuring compliance with the jurisdiction’s tax regulations.
The Local File plays a crucial role in the UAE’s transfer pricing documentation framework. It provides comprehensive details on a taxpayer’s-controlled transactions during a specific tax period. Businesses operating in the UAE must prepare and maintain a Local File if they meet either of the following criteria; Even if an entity does not meet the Local File threshold, it must still maintain sufficient records to justify that transactions with Related Parties or Connected Persons comply with the Arm’s Length Principle.
However, Ministerial Decision No. 97 of 2023 and the UAE transfer pricing guidelines (CTGTP1) define specific circumstances where a Taxable Person must document certain controlled transactions in the Local File.
Maintaining a Master File and Local File in the UAE is crucial for businesses to ensure compliance with tax regulations and mitigate risks. Proper documentation helps in managing transfer pricing risks, avoiding disputes and litigation, and preventing penalties for non-compliance. It also supports the Arm’s Length Principle (ALP) compliance, facilitates Advance Pricing Agreements (APAs), and enhances the company’s credibility with the Federal Tax Authority (FTA).
A Local File is a detailed report that provides information on a taxpayer’s-controlled transactions with related parties, ensuring compliance with transfer pricing regulations in the UAE.
The Local File must contain details about the local entity, a breakdown of significant controlled transactions, functional analysis, method used to benchmark the transaction, benchmarking analysis etc. and relevant financial data to demonstrate adherence to the Arm’s Length Principle.
Proper documentation ensures compliance with UAE tax laws, mitigates risks, prevents disputes, avoids penalties, and demonstrates adherence to the Arm’s Length Principle (ALP) before the Federal Tax Authority (FTA).
A Local File focuses on transaction-level details for a specific jurisdiction, while a Master File provides a broader overview of the multinational group’s global business structure, transfer pricing policies, and financials.
Failure to maintain a Local File may lead to non-compliance penalties, tax audits, disputes, and potential transfer pricing adjustments imposed by the FTA.
Businesses that fail to comply with transfer pricing rules may face penalties ranging from AED 10,000 to AED 100,000.
6 Masterfile
The Master File is a comprehensive document that provides an overview of a multinational enterprise (MNE) group’s global operations, transfer pricing policies, management of intangible assets, financial activities, and income allocation. It places these practices within the broader economic, legal, and regulatory framework. While it should offer sufficient detail, the OECD guidelines emphasize that exhaustive information is not required. Businesses should exercise sound judgment when preparing the Master File, and expert guidance can help ensure accuracy and compliance.
The Master File is a key Transfer Pricing (TP) document that offers a high-level overview of an MNE Group’s global business operation, transfer pricing policies, key value drivers, and the allocation of income and economic activity across jurisdictions.
Master File Requirements in the UAE
As per the OECD’s BEPS Action Plan 13, the Master File and Local File are key components of transfer pricing documentation. The UAE follows this framework, requiring taxable persons to prepare, maintain, and submit these files.
Taxable persons in the UAE must maintain these files if:
Proper documentation ensures:
The Master File provides a global overview of your MNE, while the Local File focuses on specific transactions within the UAE jurisdiction. Both files are required for comprehensive transfer pricing documentation. The Master File sets the context, and the Local File provides detailed analysis of local transactions.”
The Master File should be updated annually to reflect any significant changes in your MNE’s operations or transfer pricing policies.
The arm’s length principle requires that transactions between related parties should be conducted under the same conditions as transactions between independent parties. The Master file helps demonstrate compliance by providing an overview of the MNEs global operations, and transfer pricing policies, and showing that these policies result in arm’s length outcomes.
7 Country by Country Reporting (CbCR)
The UAE Ministry of Finance introduced Country-by-Country Reporting (CbCR) under Cabinet Resolution No. 32 of 2019 to enhance tax transparency and align with OECD’s BEPS Action Plan 13. Multinational enterprise (MNE) groups with consolidated revenues of AED 3.15 billion or more in the preceding fiscal year must comply with CbCr requirements. The Ultimate Parent Entity (UPE) or a Constituent Entity based in the UAE must file a CbC notification and submit a detailed report within 12 months of the fiscal year-end, covering revenues, profits, taxes paid, assets, and employees across jurisdictions. Non-compliance can lead to significant penalties imposed by UAE authorities.
CbCR summarizes a multinational group’s income allocation, taxes paid, and economic activities across jurisdictions. It lists constituent entities, their tax residency, and business activities. The report must be filed with the FTA, specifying the ultimate parent entity.
Under Cabinet Resolution No. 44 of 2020, CbCR requirements apply if an entity is the Ultimate Parent Company of an MNE Group in the UAE and the Group’s consolidated revenue meets or exceeds AED 3.15 billion in the prior financial year.
The Ultimate Parent Entity must inform the competent authority of its reporting status by the last day of the Group’s fiscal year. Non-compliance may result in an administrative penalty of AED 1,000,000, with an additional AED 10,000 per day for continued failure (up to AED 250,000).
The Ultimate Parent Entity must submit the CbC Report to the Ministry of Finance (MoF) within 12 months from the financial year-end.
Penalties will be served to those who fail to comply with the CbCR requirements. Such penalties are as follows:
CbCR is part of the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan 13, designed to enhance tax transparency by requiring MNE groups to disclose jurisdiction-wise revenue, taxes paid, and economic substance. The UAE, in alignment with global standards, mandates CbCR compliance to prevent tax avoidance and ensure fair taxation.
Entities qualifying under the CbCR threshold must (i) submit a notification to the Ministry of Finance confirming their reporting status and (ii) file the full CbC Report within 12 months from the end of the fiscal year. Failure to meet these obligations results in significant financial penalties.
An MNE Group must comply if (i) the Ultimate Parent Entity (UPE) is a tax resident in the UAE and (ii) the group’s consolidated revenue meets or exceeds AED 3.15 billion in the preceding financial year. The applicability extends to any UAE-based constituent entity if the UPE is not reporting in its tax jurisdiction.
CbCR disclosures provide tax authorities with jurisdictional insight into an MNE’s global profit allocation and related-party transactions, increasing scrutiny over transfer pricing structures. Misalignment between income distribution and economic substance may trigger tax audits or adjustments.
Non-compliance results in severe penalties, including a base fine of AED 1,000,000, with an additional AED 10,000 per day of continued failure (up to a maximum of AED 250,000). Furthermore, failure to provide accurate data can lead to reputational risks, increased audit exposure, and potential reallocation of taxable income.
MNEs must ensure accurate financial consolidation, validate intercompany transaction consistency, and align transfer pricing documentation with OECD guidelines. Implementing internal governance mechanisms and leveraging technology solutions for real-time compliance tracking can mitigate reporting risks.
In today’s dynamic regulatory environment, ensuring compliance with UAE and global transfer pricing (TP) regulations is essential for businesses operating across jurisdictions. At BCL Globiz, we specialize in providing expert transfer pricing solutions that are tailored to your business needs while maintaining full compliance with the evolving tax landscape. Our team of specialists offers comprehensive support, from benchmarking studies to regulatory reporting, helping businesses navigate the complexities of transfer pricing seamlessly and efficiently.
1. Expertise in UAE & Global Regulations
2. Tailored Solutions for Your Business
3. Seamless Compliance & Documentation Support
With BCL Globiz, you gain a trusted partner in transfer pricing compliance and strategy. Our expertise, customized approach, and end-to-end support help businesses stay compliant while optimizing their tax positions.
Partner with BCL Globiz for tailored transfer pricing solutions. Contact us today to ensure compliance and enhance your tax strategy.
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