How Transfer Pricing Rules Affect Your Corporate Tax Filing 2025

With the UAE's Corporate Tax Law (Federal Decree-Law No. 47 of 2022) now fully effective, transfer pricing is at the forefront of tax compliance for foreign and domestic businesses operating in the UAE. Transfer pricing rules under article 34-36 of the Transfer Pricing Guide mandate related party or connected person transactions to satisfy the arm's-length test—that is, be priced as it would be between unrelated parties under prevailing market conditions. 

The FTA mandates that all controlled transactions—whether between UAE free zone entities or cross-border group companies—follow this principle to prevent artificial profit shifting and to ensure accurate taxation in each jurisdiction. 

Why Transfer Pricing Compliance Matters for 2025 Filings 

The FTA’s Transfer Pricing Guide (CTGTP1) establishes that even local or small intra-group transactions fall within the scope of TP rules. Businesses should clarify how transfer prices were determined and maintain supporting analysis. The FTA TP Guide makes clear that transfer pricing rules apply to both domestic and cross-border transactions between related parties and connected persons. This means that even intra-UAE transactions (for example, between a mainland company and its Free Zone affiliate) must follow arm’s-length principles. 

For the UAE corporate tax 2025 filing cycle, taxpayers will be required to disclose related-party transactions on their tax returns and demonstrate compliance through robust documentation. Non-compliance could invite transfer pricing penalties, including adjustments and audits that may increase tax liabilities. 

Further, disclosure is required when transaction values cross materiality thresholds set by the FTA. 
According to the TP Guide (Section 6.6), a Taxable Person must prepare a Master File and Local File if it meets either of the following criteria during the relevant tax period: 

• Consolidated Group revenue ≥ AED 3.15 billion, or 

• The Taxable Person’s revenue ≥ AED 200 million. 

These thresholds determine when detailed transfer pricing documentation in the UAE is required in addition to the mandatory disclosure in the Corporate Tax Return 

The Arm’s Length Principle and Its Application 

Underpinning the transfer pricing rules in the UAE is the arm's-length principle, borrowed from the OECD Transfer Pricing Guidelines. It requires firms to take into account what would have been negotiated by independent parties under similar conditions. 

To determine the correct pricing, the FTA recognizes five primary transfer pricing methods in the UAE as per Article 34(4): 

• Comparable Uncontrolled Price (CUP) Method 

• Resale Price Method 

• Cost Plus Method 

• Transactional Net Margin Method (TNMM) 

• Profit Split Method 

Taxpayers may use another method if it can more reliably establish the arm’s length price in line with the transaction’s characteristics. 

In applying this principle effectively, the FTA guide requires a three-step process: 

• Recognize controlled transactions and related parties. 

• Select the most appropriate transfer pricing method (e.g., CUP, RPM, TNMM, or Profit Split). 

• Set the arm's length range and document the rationale. 

Transfer Pricing Documentation Requirements in the UAE 

The FTA emphasizes a three-level documentation format: 

• Disclosure Form in the Corporate Tax Return 

• Local File, showing all controlled transactions and associated financial data 

• Master File, offering an overview of the worldwide activities of the multination group 

The transfer pricing documentation in the UAE must be contemporaneous—prepared in real time, not retrospectively—and must align with Ministerial Decision No. 97 of 2023. 

Country-by-Country Reporting (CbCR) 

For Multinational Enterprise (MNE) Groups, an additional CbCR requirement applies under Cabinet Resolution No. 44 of 2020 when the group’s consolidated revenue equals or exceeds AED 3.15 billion in the preceding fiscal year. 

Hence, the thresholds for documentation are: 

• Master File / Local File: AED 200 million (Taxable Person revenue) or Group ≥ AED 3.15 billion 

• CbCR: Group ≥ AED 3.15 billion 

Transfer Pricing in UAE Free Zones 

Most companies assume free zone entities are exempt from TP obligations. The UAE free zone's corporate tax regime, however, exempts only up to the point where the qualifying income and compliance requirements are met. Free zone entities must continue to justify related-party prices under the arm's length principle and maintain transfer pricing documentation where required. 

Even where income may qualify for a 0% tax rate, transactions with related parties—whether within the same Free Zone, another Free Zone, or the mainland—must still be conducted at arm’s length. 

Moreover, Free Zone entities must meet the same documentation thresholds (AED 200 million / AED 3.15 billion) as mainland taxpayers when filing under the corporate tax UAE free zone regime. 

FTA guidance clarifies that controlled transactions within or outside the free zone—especially with mainland or foreign affiliates—must be priced reasonably and reported accurately. 

Avoiding Common Mistakes in Transfer Pricing Compliance in the UAE 

The FTA highlights several recurring errors businesses should avoid: 

• Disregarding domestic related-party transactions 

• Depending on outdated comparable or partial functional analyses 

• Handling intercompany loans or management fees that lack arm's-length justification 

• Failure to prepare or keep proper documentation 

Such defaults generally trigger transfer pricing audits in the UAE, wherein the FTA may demand elaborate explanations or propose adjustments to taxable income. 

How to Prepare Transfer Pricing Documentation in the UAE 

For 2025 filings, businesses should begin early by: 

• Conducting a functional analysis of all related-party activities 

• Selecting and justifying the proper transfer pricing methods in the UAE 

• Preparing the Master File and Local File in accordance with FTA corporate tax rules 

• Reviewing intra-group services, intangibles, and financial transactions for consistency 

Engaging a corporate tax advisory firm with transfer pricing expertise can ensure compliance and reduce the risk of costly penalties. 

Transfer Pricing Impact on Corporate Tax Return in the UAE 

Every corporate tax filing in the UAE must now include disclosure of related-party dealings. Pricing and documentation errors can result in corrections, double taxation, and loss of free zone benefits eligibility. 

Proper alignment with UAE transfer pricing regulations not only safeguards against transfer pricing penalties but also supports transparent business practices that facilitate long-term tax compliance.  

FAQs 

Q1: Who must comply with the UAE transfer pricing rules? 

All taxable persons engaging in transactions with related parties or connected persons must comply, provided they meet the materiality thresholds (AED 200 million in revenue or part of a group with ≥ AED 3.15 billion consolidated revenue). Entities below the threshold must still apply the arm’s length principle but may not need to maintain detailed documentation. 

Q2: What are the key documents required? 

As per Ministerial Decision No. 97 of 2023, the FTA mandates: 

A Disclosure Form within the Corporate Tax Return, 

A Local File and Master File (when thresholds are met), and 

A CbCR for MNE groups with global revenue ≥ AED 3.15 billion. 

Q3: Do free zone companies need to follow TP rules? 

Yes. All Free Zone entities with related-party transactions must apply the arm’s length principle. They must maintain transfer pricing documentation if their annual revenue exceeds AED 200 million or their group revenue exceeds AED 3.15 billion, even if their qualifying income is taxed at 0%. 

Q4: What triggers a transfer pricing audit in the UAE? 

Inconsistencies in documentation, missing disclosures, or deviations from the arm’s-length principle can prompt FTA audits.