Transfer Pricing in the United Arab Emirates

The legal framework

Federal Decree-Law No. 47 of 2022, effective for financial years beginning on or after 1 June 2023, carries the regime in five articles: 34 (arm's length principle), 35 (related parties and control), 36 (connected persons), 55 (documentation) and 59 (clarifications and advance pricing agreements). The three amending decree-laws since have left them untouched.

Article 34(1) requires related-party transactions to be at arm's length and Article 34(2) defines the standard by outcome: the result must match what non-related persons would have realised in comparable circumstances. There is no de minimis: thresholds govern paperwork, never substance.

Article 35(1) casts the net widely: kinship to the fourth degree, 50%-or-more ownership or control between juridical persons, a person and its permanent establishment, fellow partners in an unincorporated partnership, and the trustee, founder, settlor or beneficiary of a trust or foundation. The Article 35(2) control test reaches past voting rights to determining half the board, taking half the profits, or exercising significant influence over another's business, catching structures with no 50% shareholding in sight. Article 36 adds a market-value and wholly-and-exclusively test on payments to owners, directors, officers and their related parties, sparing listed and regulated entities.

Two features surprise inbound advisers. The rules reach purely domestic dealings, not only cross-border flows, and for a Qualifying Free Zone Person compliance with Articles 34 and 55 is a standing condition of the 0% rate (Article 18(1)(d)). And the OECD Guidelines are persuasive but subordinate: the FTA's guide CTGTP1 takes them into account while directing taxpayers to the Law, Ministerial Decision No. 97 of 2023 and the guide itself as prevailing.

Methods, comparables and benchmarking

Article 34(3) recognises the five OECD methods; Article 34(4) permits another only where the taxpayer shows none of them can reasonably be applied. Article 34(5) requires the most reliable method, judged on contractual terms, economic circumstances, functions, assets and risks, and business strategies; with no statutory hierarchy, the weight falls on a documented selection rationale. Article 34(6) adds a protection often overlooked: the FTA must examine using the taxpayer's method, provided it is appropriate.

Benchmarking is where UAE practice diverges most from offshore habit. CTGTP1 prescribes a search order: domestic comparables first, then Middle East regional, then global, the last only where domestic data is insufficient. A pan-European set dropped in with no documented domestic search is the commonest defect in files prepared abroad. The FTA has no database preference but can demand access to the one used under Article 55(4).

Article 34(7) recognises the arm's length range and any point within it is acceptable; the interquartile range is endorsed for sizeable datasets, the guide's example running 3.80% to 8.45% around a 5.39% median. The point chosen must still be defensible, because the FTA reads position against the functional profile — lower quartile for minimal functions, assets and risk, upper quartile where valuable functions and real risk assumption sit. Extreme results may be trimmed only on identifying a missed comparability defect. The tested party must be the less complex one.

By transaction type the FTA follows the OECD chapters: intangibles Chapter VI (no hard-to-value intangibles regime exists in UAE law), services Chapter VII, financial transactions Chapter X, cost contribution arrangements Chapter VIII. The one real simplification is the low value-adding services election at cost plus 5% without benchmarking. Debt pricing must also clear the BEPS Action 4 interest limitation, a deduction test separate from the arm's length question.

Documentation: what the FTA expects

A master file and local file are required where either limb of Article 2(1) of Ministerial Decision No. 97 of 2023 is met: membership in the period of an MNE group with consolidated revenue of AED 3.15 billion or more, or own revenue of AED 200 million or more. The tests are alternative: a large standalone UAE business is caught by the second limb, while a UAE-only group needs no master file.

Article 2(2) requires transactions with non-residents, exempt persons, residents electing small business relief, and residents taxed at a different rate — the limb that pulls in free zone counterparties. Article 2(3) excludes ordinary domestic related-party transactions and dealings with natural persons or fellow partners acting as if independent — ordinary course of business, no near-exclusive dealing, no comprehensive control. Excluded transactions must still be arm's length; content follows Annexes I and II to Chapter V.

Neither file is filed with the return, but both must be produced within 30 days of an FTA request (Article 55(3)); Article 55(4) puts every taxable person, including those below the thresholds, on the same clock for supporting information. Documentation must therefore be contemporaneous, in place by the filing date. Records run seven years (Article 56), and while English is accepted in practice, Article 5 of the Tax Procedures Law entitles the FTA to a certified Arabic translation at the taxpayer's cost.

Disclosure sits inside the return, filed within nine months of period end via EmaraTax. The Related Party Transactions Schedule is triggered above AED 40 million in aggregate, after which each category above AED 4 million is disclosed, dividends excluded; the Connected Persons Schedule bites at AED 500,000. UAE-headquartered groups above AED 3.15 billion notify the Ministry of Finance by the last day of the reporting fiscal year and file the CbC report within twelve months of year end, with no secondary filing for UAE subsidiaries of foreign-parented groups.

Audits, penalties and the enforcement climate

There is no transfer pricing penalty code and no documentation-based penalty shield; failures land in the general table in Cabinet Decision No. 75 of 2023. A file that cannot be produced is a records failure at AED 10,000, or AED 20,000 on repetition within 24 months. A missing or late disclosure is a Declaration failure at AED 500 a month for the first year and AED 1,000 thereafter. The real exposure is in adjustment mechanics: a voluntary disclosure costs 1% of the tax difference per month from the original due date, and failing to make one before audit notification adds a fixed 15%, with unpaid tax at 14% a year. Correcting a return before its filing deadline costs nothing, the only genuine mitigation. CbC reporting is the outlier, at AED 1 million plus AED 10,000 a day.

The horizon is long: five years from period end to audit or assess, plus four more where audit procedures are notified inside the five — an effective nine-year limit, and fifteen years for evasion or non-registration. The burden sits on the taxpayer, and the FTA can go behind the transaction, disregarding or replacing one that lacks the commercial rationality independent parties would show, with Article 50 supplying a general anti-abuse counteraction. No UAE transfer pricing judgment or Tax Disputes Resolution Committee decision has reached the public domain; first returns fell due only from 2025.

Dispute resolution and advance certainty

The domestic appeal route is sequential and counted in business days: an optional assessment review, reconsideration to the FTA, objection to the Tax Disputes Resolution Committee, then appeal to the Competent Court, each on a 40-business-day clock. An objection is inadmissible unless reconsideration came first and the disputed tax has been paid in full, and no case reaches court without going to the Committee, whose decisions are final where tax and penalties do not exceed AED 100,000.

Advance certainty arrived in December 2025: Article 59 always permitted APAs, but the FTA only operationalised it with Guide CTGAPA1, and the programme is phased. Unilateral APAs on domestic transactions opened at once; the date for cross-border unilateral APAs, promised during 2026, had not been announced by August 2026, and bilateral and multilateral APAs remain described rather than operational. The indicative threshold is AED 100 million of covered transactions per period, at tax group level; terms run three to five periods, prospective only, with no rollback; fees are AED 30,000 new, AED 15,000 on renewal. Domestic APAs are effectively confined to rate-differential cases, most obviously free zone to mainland flows.

Article 34(10) obliges the FTA to make a domestic corresponding adjustment where income is adjusted to arm's length, and Article 34(11) lets a UAE taxpayer apply for one following a foreign adjustment under the relevant treaty. There is no secondary adjustment regime — no deemed dividend, constructive loan or notional interest — unsurprising given the 0% withholding rate in Article 45(1). MAP runs under the treaty network with the Ministry of Finance as Competent Authority, and the Ministry published Mutual Agreement Procedure guidance for taxpayers on 24 June 2025, now hosted on the MoF website.

Pillar Two and what changed in 2026

Public Clarification CTP011 of 15 July 2026 reverses the FTA's position on downward adjustments. Both the 2023 Transfer Pricing Guide and the 2024 Returns Guide said a reduction in taxable profit required a successful application to the FTA; CTP011 confirms that because corporate tax is self-assessed, no prior approval is needed either way. The trade-off is disclosure: every downward-adjusted transaction must be disclosed regardless of value, so the AED 40 million and AED 4 million gates do not apply. The expected file is specified: rationale, benchmarking-based analysis, a reconciliation from the financial statements to the return figures, and evidence of a symmetrical counterparty adjustment. Both older guides remain published and unamended, so a client reading the guide alone will reach the wrong answer.

Second, Pillar Two. Cabinet Decision No. 142 of 2024, made under Article 3(3), imposes a Domestic Minimum Top-up Tax for financial years starting on or after 1 January 2025 on constituent entities of groups with EUR 750 million of revenue in two of the four preceding years. The UAE has deliberately not adopted the Income Inclusion Rule, having no CFC regime; the DMTT keeps the top-up onshore and is built to hold QDMTT Safe Harbour status. Ministerial Decision No. 96 of 2026 adopts the OECD Commentary and Administrative Guidance, and FTA Decision No. 12 of 2026 sets registration within seven months of the first in-scope fiscal year, with a 30 November 2026 backstop. Ministerial Decision No. 131 of 2026 extends small business relief to periods ending on or before 31 December 2029, keeping relief-electing residents inside the local file. On Amount B, the UAE's OECD country profile records that no position has yet been taken on domestic adoption, alongside an affirmative commitment, as an Inclusive Framework member, to respect the outcome of the simplified and streamlined approach applied by a covered jurisdiction, subject to the required domestic legal and administrative protocols.

How practitioners should respond

Test the population before testing the prices: Article 35(2) control and the Article 36 connected-person rules capture family holdings, director remuneration and shareholder charges that no group transfer pricing policy addresses, and free zone entities carry the additional Article 18 risk that a transfer pricing failure destroys the 0% rate for the whole period. Rebuild benchmarking to the UAE search order and document the domestic search even when it yields nothing, because the failed search is what justifies going regional. Treat 30 days as the operative deadline rather than the request date. Where a downward adjustment is in play, assume full disclosure and build the CTP011 package, counterparty symmetry evidence included, alongside the return rather than afterwards. For material free zone to mainland flows, or a history of contested pricing, price the AED 30,000 domestic APA against a nine-year assessment window.