With the UAE’s introduction of the Corporate Tax (CT) regime in 2023, many businesses are still navigating the complexities of compliance requirements. One crucial area that has garnered significant attention is transfer pricing—a topic that raises questions for multinational corporations, regional businesses, and tax professionals alike. As we approach 2025, companies operating in or through the UAE are keen to understand if they need to report transfer pricing under the new corporate tax framework.
This comprehensive guide will help you understand:
- What transfer pricing is and why it matters
- How the UAE Corporate Tax regime addresses transfer pricing
- Reporting obligations for transfer pricing in 2025
- Best practices for compliance and risk management
Let’s dive in!
What Is Transfer Pricing?
Transfer pricing refers to the pricing of goods, services, or intangibles exchanged between related entities within a multinational group. For example, if a UAE-based subsidiary sells products to its parent company or another affiliate, the price at which these transactions occur is the “transfer price.”
Why is transfer pricing important? Because related entities could manipulate prices to shift profits to low-tax jurisdictions, minimizing overall tax liabilities. To counteract such base erosion and profit shifting (BEPS), countries impose transfer pricing rules requiring transactions between related parties to be conducted at “arm’s length” — i.e., prices that unrelated parties would agree upon under similar circumstances.
The UAE Corporate Tax Landscape: A Quick Overview
Historically, the UAE was known for its tax-free environment, with no federal corporate tax on most business activities. However, in an effort to align with international tax standards and diversify government revenue, the UAE introduced a federal Corporate Tax effective from June 1, 2023.
Key highlights of the UAE Corporate Tax regime include:
- A standard CT rate of 9% on taxable income exceeding AED 375,000
- A 0% CT rate on taxable income below this threshold, effectively exempting smaller businesses
- Specific provisions for large multinationals subject to the OECD’s Pillar Two Global Minimum Tax rules
- Introduction of transfer pricing documentation and reporting requirements to ensure compliance with international tax standards
This development marks a significant shift, especially for multinational groups operating within the UAE.
Does the UAE Corporate Tax Regime Include Transfer Pricing Rules?
Yes. Transfer pricing is explicitly addressed in the UAE Corporate Tax law and accompanying guidelines. The Federal Tax Authority (FTA) mandates that related-party transactions must comply with the arm’s length principle, consistent with OECD Transfer Pricing Guidelines.
Key Transfer Pricing Requirements Under UAE CT:
- Arm’s Length Principle
Transactions between related parties must be priced as if they were conducted between independent parties under comparable conditions. - Transfer Pricing Documentation
Entities engaging in related-party transactions must prepare and maintain adequate transfer pricing documentation to demonstrate compliance. This includes details on the nature of transactions, pricing policies, and economic analyses justifying the prices charged. - Country-by-Country Reporting (CbCR)
Multinational groups with consolidated revenue exceeding AED 3.15 billion (approximately USD 860 million) are required to file a CbCR, disclosing information on global allocation of income, taxes paid, and economic activity.
Do You Need to Report Transfer Pricing in 2025?
1. Who Must Report?
Transfer pricing reporting in the UAE is relevant if you meet any of the following criteria:
- Your business is part of a multinational group with related-party transactions.
- You have cross-border transactions with related entities.
- Your group meets the threshold for Country-by-Country Reporting.
- You conduct significant related-party transactions that affect your UAE taxable income.
2. What Are the Reporting Requirements for 2025?
For the 2024 tax year (due for filing in 2025), UAE entities must:
- Submit a Corporate Tax Return that includes disclosures of related-party transactions.
- Prepare and maintain transfer pricing documentation as part of the tax file.
- If applicable, submit a CbCR notification to the FTA, declaring whether the group qualifies to file the detailed Country-by-Country Report.
- Comply with additional transfer pricing disclosures mandated by the FTA.
3. Deadline for Reporting
The UAE Corporate Tax Return for the 2024 tax year must generally be filed within nine months after the end of the tax period. Transfer pricing documentation is not submitted with the return but must be available upon request by the FTA.
What Happens If You Don’t Comply
Failure to comply with transfer pricing requirements can result in:
- Additional tax assessments with penalties and interest
- Increased scrutiny and potential audits from the FTA
- Reputational damage and operational disruptions
- Possible double taxation if adjustments are not mutually agreed upon internationally
Given the significant financial and legal risks, proactive compliance is essential.
How to Prepare for Transfer Pricing Reporting in the UAE
1. Conduct a Transfer Pricing Risk Assessment
Begin by identifying and assessing all related-party transactions. Determine if they pose any transfer pricing risk, particularly those involving intangible assets, financing arrangements, or services.
2. Document Your Transfer Pricing Policies
Prepare comprehensive transfer pricing documentation that:
- Describes your group structure and related-party relationships
- Details the nature and terms of related-party transactions
- Explains the transfer pricing methodology used to determine arm’s length prices
- Provides benchmarking and economic analysis to justify the pricing
3. Monitor and Update Annually
Transfer pricing is dynamic. Economic conditions, business models, and tax laws change. Keep your documentation up to date to reflect current realities and maintain compliance.
4. Understand CbCR Obligations
If your multinational group exceeds the revenue threshold, coordinate with your parent company to ensure timely and accurate Country-by-Country reporting.
5. Leverage Technology and Expertise
Consider tax technology solutions to automate data collection and documentation. Engage transfer pricing specialists or tax advisors familiar with UAE Corporate Tax rules.
Practical Examples of Transfer Pricing in the UAE
Let’s illustrate with a few common scenarios:
- UAE subsidiary sells goods to an affiliated company overseas: The transfer price must reflect market conditions, factoring in costs, functions performed, and risks assumed.
- Provision of management services by a UAE entity to related companies: The service fees must be priced as if charged to unrelated parties, often requiring time tracking and cost plus markup analyses.
- Financing transactions within a group: Interest rates on loans between related entities should be aligned with prevailing market rates, supported by credit ratings and comparable debt data.
Transfer Pricing & UAE Free Zones: What You Need to Know
The UAE is home to multiple free zones offering tax incentives. However, businesses operating within these zones are still subject to Corporate Tax and transfer pricing rules if:
- They have transactions with related entities outside the free zone.
- They are part of multinational groups with consolidated taxable income.
It’s important to ensure that free zone entities maintain transfer pricing documentation consistent with the UAE’s CT law to avoid adjustments and penalties.
The Future of Transfer Pricing in the UAE: Trends to Watch
- Increased scrutiny and audits by the FTA as the CT regime matures.
- Alignment with global tax reforms, including OECD Pillar Two rules.
- Expansion of transfer pricing documentation requirements to cover new transaction types.
- Greater emphasis on digital economy transactions and intangibles.
- Growing use of technology and data analytics in transfer pricing compliance.
Conclusion: Are You Ready to Report Transfer Pricing in 2025?
With the UAE Corporate Tax fully operational, transfer pricing reporting is no longer optional—it’s mandatory for many businesses engaged in related-party transactions. As you prepare your 2024 tax filings for submission in 2025, ensure that you:
- Understand your transfer pricing obligations under UAE CT law.
- Maintain accurate and comprehensive transfer pricing documentation.
- Coordinate with your multinational group for CbCR if applicable.
- Seek expert advice to mitigate risks and optimize compliance.
Proactive transfer pricing management can save your business from costly audits, penalties, and reputational harm. Start early, stay informed, and embrace best practices to navigate the evolving UAE tax landscape confidently.
Frequently Asked Questions (FAQs)
Q1: Does every UAE company need to file transfer pricing documentation?
A: No, only companies involved in related-party transactions that materially impact their UAE taxable income must prepare transfer pricing documentation.
Q2: Is transfer pricing reporting linked to corporate tax filing deadlines?
A: While transfer pricing documentation is maintained internally, disclosures related to transfer pricing must be included in the corporate tax return filed within nine months of the tax period end.
Q3: How does Country-by-Country Reporting work in the UAE?
A: Multinational groups meeting the revenue threshold must notify the FTA and submit a CbCR, usually through the Ultimate Parent Entity or designated surrogate.
If you want detailed guidance tailored to your business or assistance with transfer pricing compliance in the UAE, feel free to reach out!
