Understanding UAE Transfer Pricing Disclosure and Documentation Requirements

Listen to this Article

The United Arab Emirates (UAE) has introduced detailed Transfer Pricing (TP) regulations as part of the Corporate Tax Law, ensuring that transactions between related parties and connected persons are conducted at arm’s length that is, as if they were between independent and unrelated entities. These rules uphold transparency and fairness in cross-border and domestic dealings and align UAE practices with OECD Transfer Pricing Guidelines. 
 
What is Transfer Pricing 

Transfer Pricing refers to the pricing of goods, services, financing, or intangible assets exchanged between related parties or connected persons. The principle ensures that such prices are consistent with what independent parties would agree upon in comparable circumstances. 
 
Who Are Related Parties 

Under Article 35 of the UAE Corporate Tax Law, parties are considered “related” based on kinship, ownership, control, or other specific relationships. 

(a) Kinship 

Individuals are related up to the fourth degree of kinship or affiliation, including through adoption or guardianship. 

• First degree: Parents and children of individual and their spouse  

• Second degree: Grandparents, grandchildren, and siblings of individual and their spouse 

• Third degree: Great-grandparents, great-grandchildren, uncles, aunts, nieces, nephews of individual and their spouse 

• Fourth degree: Great-great-grandparents, great-great-grandchildren, grand-uncles, grand-aunts, first cousins of individual and their spouse 

(b) Ownership 

A natural and juridical person is related where the individual, or one or more Related Parties of the individual, are shareholders in the juridical person, and the individual, alone or together with its Related Parties, directly or indirectly owns a 50% or greater ownership interest in the juridical person. 

Two or more juridical persons are Related Parties by way of ownership if: 

a juridical person, alone or together with its Related Parties, directly or indirectly owns a 50% or greater ownership interest in the other juridical person; or 

any Person, alone or together with its Related Parties, directly or indirectly owns a 50% or greater ownership interest in such two or more juridical persons. 

as per Article 35(1)(b)(1) of the Corporate Tax Law, the Natural Person or one or more Related Parties of the Natural Person are shareholders in the juridical person, and the Natural Person, alone or together with its Related Parties, directly or indirectly owns a 50% (fifty percent) or greater ownership interest in the juridical person. Likewise, as per Article 35(1)(c)(1); one juridical person, alone or together with its Related Parties, directly or indirectly owns a 50% (fifty percent) or greater ownership interest in the other juridical person.  

(c) Control 

Control exists when a person can direct or influence another’s business or management decisions, including where: 

• 50 percent or more of voting rights or board composition can be controlled, 

• 50 percent or more of profits can be received, or 

• Significant influence is exercised through financial or operational control. 

(d) Additional Criteria 

The definition also covers: 

• A person and their permanent establishment, 

• Partners of the same unincorporated partnership, and 

• Trustees, founders, settlors, or beneficiaries of a trust or foundation, including related parties of such entities. 
   
  Connected Persons 
   
  A Connected Person includes: 

• Any individual who directly or indirectly owns an interest in, or controls, the taxable person, 

• A director or officer of the taxable person, or their related parties, 

• A partner in an unincorporated partnership, and their related parties. 

Payments to connected persons are deductible for corporate tax purposes only if they satisfy the arm’s length principle and are made for legitimate business purposes. 
 
Disclosure Thresholds 

The FTA requires disclosure of related party transactions where: 

• The aggregate value of such transactions is AED 40 million or more, based on book value or market value (whichever is higher); and 

• Each category of related party transaction goods, services, intellectual property, interest, assets, liabilities, and others exceeding AED 4 million must be disclosed in the Corporate Tax Return. 

Dividends between related parties are excluded from disclosure and from determining threshold values. Income and expenses must be reported separately, and netting off is not permitted. 

Note: These thresholds apply only to disclosure. The arm’s length principle must be followed for all transactions, regardless of amount. 
 
Disclosure for Connected Persons 

If the aggregate value of payments or benefits to connected persons exceeds AED 500,000, such transactions must be reported in the Connected Persons Schedule of the tax return. 

 Adequate supporting documents including agreements, service evidence, cost-benefit analysis, and arm’s length justifications must be maintained. 
 
Transfer Pricing Documentation 

The UAE TP regulations require different levels of documentation depending on turnover and group structure: 

Maintaining TP documentation serves as protection against tax adjustments and potential penalties. 
 
Way Forward 

To ensure compliance with UAE Transfer Pricing Regulations: 

• Review inter-company pricing policies, 

• Establish Standard Operating Procedures to monitor related party transactions, 

• Conduct mid-year TP reviews to identify and correct deviations, and 

• Complete benchmarking and documentation before filing deadlines. 

Transfer Pricing compliance not only fulfills legal obligations but also supports the credibility of a business’s tax position. Maintaining proper documentation irrespective of thresholds should be viewed as an essential part of sound corporate governance. 

Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.