Transfer pricing for UAE companies
Related party transactions under UAE corporate tax: where the arm’s length rule applies to you, how to document it, and when a Master and Local File is required.
We review where transfer pricing obligations apply to your company and document transactions with related parties. Depending on size and circumstances that extends to preparing the required transfer pricing documentation and disclosures. The arm’s length principle applies to every company with related party dealings, the paperwork requirement is what scales with size.
Does transfer pricing apply to a small company?
The principle does, the paperwork mostly does not, and confusing the two is the most common mistake in both directions. Under UAE corporate tax, any transaction with a related party has to be priced as if it were agreed between two unconnected businesses. That applies whether the company turns over a few hundred thousand dirhams or a few hundred million.
What changes with size is only whether you have to file a formal disclosure and maintain a Master File and a Local File. Most companies here never reach those thresholds, and still have to be able to explain their pricing.
Who counts as a related party?
Far more people than owners usually expect. The category covers not just group companies but also the owner personally, close family members and entities under common control.
- A salary or a director fee paid to the owner
- A loan between the company and its shareholder, in either direction
- Rent paid for premises owned by the owner or a relative
- Services invoiced between two companies with the same beneficial owner
- Goods bought from or sold to a group company abroad
When is a Master File and Local File required?
Only where your own revenue for the tax period reaches AED 200 million, or where you belong to a multinational group with consolidated revenue of AED 3.15 billion or more. Below those figures the obligation is to apply the principle and be able to evidence it, not to produce a formal file.
For most companies the proportionate answer is a related party register, a short note per transaction explaining how the price was set and why it reflects market terms, and the underlying agreements and invoices kept together. That is defensible, and it takes hours rather than weeks.
What do we do for you?
We start with the review, because a large share of companies discover they have related party transactions they had never classified as such, typically the owner salary and the shareholder loan.
- Identifying related parties and the transactions with them
- Assessing which obligations actually apply at your size
- Building the documentation, from a proportionate register through to a full file
- Preparing the disclosure that accompanies the corporate tax return
- Making sure the pricing in the books matches the pricing in the documentation
Frequently asked questions
I am the only shareholder. Does this still concern me?
Yes, and often more directly than owners expect. Your own salary, any loan between you and the company and rent for premises you own are all related party transactions, and each has to be at arm’s length. Sole ownership does not remove the rule, it is usually what triggers it.
What if we have never documented any of this?
Then we build it now for the current period and reconstruct what is reasonably possible for earlier ones. Documentation prepared before a query is straightforward, documentation prepared during one is treated with considerably more scepticism.
Do you set the prices for us?
We assess whether existing pricing holds up and document the reasoning. Where it does not hold up, we say so and set out what a defensible arrangement looks like. We do not produce figures designed to fit a desired result.
Does the disclosure go in with the tax return?
Yes, the transfer pricing disclosure accompanies the corporate tax return where the conditions are met. We prepare it together with the return so both are consistent, which is exactly where the discrepancies otherwise appear.
Keep reading: Transfer pricing and related party transactions ·Corporate tax services ·Bookkeeping services in Dubai