Related party transactions and transfer pricing in the UAE: what SMEs actually need to do

Transfer pricing sounds like a multinational problem, something for a group with subsidiaries on three continents and a tax department to match. Most UAE SME owners hear the term and assume it does not apply to them. That assumption is wrong, and it is an expensive one to hold.

The arm’s length principle applies to every related party transaction in the UAE, from the first dirham. What actually changes with company size is not whether the rule applies, it is whether you owe the Federal Tax Authority a formal form about it. Those are two different questions, and mixing them up is where the trouble starts.

The arm’s length principle applies no matter your size

If your company sells to, buys from, employs, lends to or rents from a related party, that transaction has to be priced as if it were between two unconnected businesses negotiating normally. This is the arm’s length principle, and under UAE Corporate Tax it applies to every Taxable Person with related party dealings, whether the business turns over AED 200,000 or AED 200 million.

Typical related party situations in an SME context:

• A shareholder’s salary that does not match the market rate for the role
• A management fee charged between two companies owned by the same person
• Rent paid to a property owned by the business owner personally
• A loan between two related companies with no interest, or interest far off market rates
• Goods or services sold between two companies under common ownership at a price that would not hold up with an unrelated buyer

None of this requires a group structure spanning multiple countries. A single owner with two UAE companies already has related party transactions the moment money moves between them.

Who counts as a related party or connected person

Two overlapping concepts matter here, and the reference file above already uses the terms precisely, so keep them separate:

Related parties are typically connected through ownership or control: entities owned by the same shareholder above certain thresholds, entities under common control, and close family members of an individual owner (spouse, parents, children and siblings, broadly).

Connected persons is a narrower category covering owners, directors, officers and their relatives, specifically in relation to payments or benefits they receive from the business, such as salaries, benefits in kind or director’s fees.

The practical distinction matters for filing, because the two categories trigger separate disclosure schedules with separate thresholds.

When the paperwork actually kicks in

This is where most SME owners overcorrect once they realise the rule exists, either ignoring it completely or assuming they suddenly need consultants and a Master File. Neither is right. The obligations scale with the numbers.

Requirement	Threshold	What it covers
Arm’s length principle	No threshold, applies to everyone	Every related party transaction must reflect market terms
Related Party Transactions Schedule	Aggregate related party transactions above AED 40 million, categories above AED 4 million itemised separately	Filed with the Corporate Tax return, breaks transactions into goods, services, interest, assets and other categories
Connected Persons Schedule	Payments or benefits to a single connected person above AED 500,000	Filed with the Corporate Tax return, covers salaries, benefits and other payments to owners, directors and their relatives
Master File and Local File	Own revenue at or above AED 200 million, or part of an MNE group with consolidated revenue at or above AED 3.15 billion	Formal transfer pricing documentation under Ministerial Decision No. 97 of 2023

Most UAE SMEs sit comfortably under all three filing thresholds. That is genuinely good news, it means less paperwork. It does not mean the underlying pricing rule stops applying, and it does not mean a Federal Tax Authority review cannot look at a related party transaction that never triggered a form.

What SMEs below the thresholds should actually do

Being under the disclosure thresholds is not a reason to keep zero documentation, it is a reason to keep light documentation. In practice this means:

1. Keep a related party register. A single spreadsheet listing every related party (shareholders, sister companies, family members employed in the business) and the type of transaction with each.
2. Write down how you set the price. For a management fee, a shareholder salary or an intercompany rent, a short paragraph explaining the market comparison you used is enough at this size. It does not need a formal benchmarking study.
3. Keep the paper trail. Invoices, agreements, payroll records and bank transfers for every related party transaction, filed the same way you would file any other business record.
4. Review the numbers once a year. Related party pricing that made sense at AED 500,000 in group revenue can look indefensible at AED 5 million. Revisit it at year end, not when a query lands.
5. Watch the thresholds, not just this year’s number. A growing business can cross AED 40 million in related party transactions faster than expected once intercompany sales, rent and management fees are added together. Track the run rate, not just the closing balance.

None of this is expensive or time consuming for a business with a handful of related party transactions a year. It is the difference between a five minute answer and a scramble if the Federal Tax Authority ever asks why a related party invoice looks the way it does.

The most common mistakes

• Assuming “small company” means “no transfer pricing rules.” The threshold affects filing, not the pricing obligation itself.
• Confusing the AED 40 million Related Party Transactions Schedule with the AED 200 million Master File and Local File threshold. They are different requirements with different triggers.
• Paying a shareholder salary with no market comparison behind it. This is the single most common related party issue found in UAE SME accounts.
• Treating an interest free related party loan as a non-event. It is still a related party transaction and still needs to reflect what an unconnected lender would charge.
• Only thinking about this at year end. By then, a badly priced related party transaction has already happened twelve times.

Conclusion

Transfer pricing in the UAE is not a multinational-only rule with an SME exemption. It is one principle, arm’s length pricing, that applies to everyone, wrapped in a set of filing thresholds that only bite once your related party transactions get large. Most SMEs will never file a Transfer Pricing Disclosure Form. Most SMEs should still be able to explain, in one sentence, why a related party price was fair.

We handle related party bookkeeping, disclosure assessments and Corporate Tax filing as part of our services, at fixed prices.

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As of July 2026. This article is general information and is no substitute for advice in an individual case.

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