Transfer Pricing in the UAE – A Strategic Tax Compliance Approach by Omnex

In the UAE’s evolving corporate tax landscape, transfer pricing documentation plays a critical role in determining tax liability for businesses involved in related party or cross-border transactions. It ensures that income is reported accurately and that pricing between related entities is consistent with international best practices.

At Omnex, we help businesses navigate the complexities of transfer pricing with expert guidance to ensure compliance with the Federal Tax Authority (FTA) regulations. Our transfer pricing solutions are aligned with UAE Corporate Tax Law and OECD guidelines, enabling you to maintain proper documentation, reduce risks, and optimise tax positions.

What is Transfer Pricing in the UAE?

Transfer pricing refers to the pricing of transactions (goods, services, intellectual property, etc.) between entities within the same multinational group. The UAE’s corporate tax regime mandates that these transactions be conducted at Arm’s Length Price (ALP)—the price that would be agreed upon between unrelated parties under market conditions.

Under the UAE Corporate Tax Law, adherence to the Arm’s Length Principle is mandatory for all related party transactions, in line with OECD Transfer Pricing Guidelines.

Arm’s Length Price (ALP) Explained

The Arm’s Length Price ensures fair taxation by requiring transactions between related parties to reflect market-based pricing, just as if they were between unrelated entities. This helps prevent manipulation of taxable income through artificial pricing.

Types of Services & Transfer Pricing Complexity

Transfer pricing varies based on the nature of the service:

Low-Value Added Services (LVAS):

• Routine or support functions
• Minimal risk and complexity

• No creation or enhancement of intangibles

High-Value Added Services (HVAS):

• R&D, technical, or strategic services
• Higher complexity and financial risk

• Involves creation or enhancement of intangible assets

Key Challenges in Determining ALP

• Limited availability of comparable market data
• Varying economic conditions across jurisdictions
• Cost and risk allocation complexities

• Assessment of intangible contributions

Who Are Related and Connected Persons?

• Related Parties: Entities or individuals with ownership, control, or kinship connections (up to the 4th degree).

• Connected Persons: Shareholders, partners, or directors directly or indirectly linked to the taxable person.

Transfer Pricing’s Impact on Corporate Tax in the UAE

Incorrect transfer pricing can reduce taxable income, leading to penalties. The FTA is authorised to make necessary adjustments based on arm’s length standards. Transfer pricing is a major focus during audits, especially for entities with cross-border or group-related transactions.

Transfer Pricing Documentation Requirements in the UAE

Per Ministerial Decision No. 97 of 2023, businesses are required to prepare documentation under the following conditions:

1. Master File & Local File Requirements if:

   • Consolidated group revenue is AED 3.15 billion or more; or

   • Revenue exceeds AED 200 million in a tax period.

2. Local File Inclusion:

   • Transactions with non-residents, exempt persons, or entities under a different tax rate.

3. Local File Exemptions:

   • Transactions with resident juridical persons taxed at the same rate, or natural persons not engaged in related transactions.

OECD-Compliant Transfer Pricing Documentation Structure

1. Master File:

Contains group-wide information including structure, operations, intangibles, and intercompany financial activities.

2. Local File:

Focuses on the UAE entity’s specific transactions, pricing methodology, and market context.

3. Country-by-Country (CbC) Report:

Required for MNEs with consolidated revenue above AED 3.15 billion. It provides jurisdiction-level breakdowns of income, taxes paid, and economic activity.

Transfer Pricing Methods Recognized by OECD

• Comparable Uncontrolled Price Method (CUPM)
• Resale Price Method (RPM)
• Cost Plus Method (CPM)
• Transactional Net Margin Method (TNMM)

• Transactional Profit Split Method (TPSM)

Choosing the right method depends on transaction type, available data, risk profile, and business model.

Why Transfer Pricing Documentation Matters

• Ensures correct pricing for tax reporting
• Minimizes audit risks and penalties
• Enhances transparency and governance

• Helps assess and justify intercompany arrangements

Omnex Transfer Pricing Services in the UAE

At Omnex, we offer comprehensive transfer pricing advisory services including:

• Transfer Pricing Policy Development
• ALP Determination and Benchmarking
• Master File & Local File Preparation
• Country-by-Country Reporting
• Transfer Pricing Risk Assessments

• FTA Representation & Audit Support

Our tax consultants are seasoned professionals with deep knowledge of UAE tax law and international transfer pricing frameworks. Whether you’re a multinational group or a local entity with related party transactions, Omnex ensures your compliance while maximising your tax efficiency.