The introduction of Corporate Tax in the UAE has transformed how businesses manage, record, and substantiate their transactions, particularly those with related parties and connected persons.

Under the UAE Corporate Tax regime, the corporate tax return must be filed within nine months from the end of the financial year. This filing includes details of all related parties and connected persons, submitted together with the tax return. For many entities, the first corporate tax filing deadline was 30th September 2025.

Prior to the recent implementation of corporate tax in the UAE, businesses were not subject to transfer pricing compliance requirements, except for obligations under economic substance reporting. As a result, many companies structured related‑party transactions informally, loans were often interest‑free, shareholder drawings were freely undertaken, and fund transfers between group entities were common.

However, under the new corporate tax law, such practices must now be justified under the arm’s length principle. Each transaction between related entities must be clearly supported and priced as though it were carried out between independent, unrelated parties under similar conditions.

Transfer Pricing Regulations and Applicability in the UAE

Transfer pricing in the UAE follows international standards, particularly those under the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan.

The UAE’s TP rules, effective from 1 June 2023, are now a key part of the corporate tax framework.

Ø  Arm’s Length Principle

All transactions between related parties, whether within the UAE or across borders, must be carried out at arm’s length value that is, at prices consistent with what independent parties would agree to under similar conditions.

Ø   Disclosure Requirements

Businesses must disclose related-party and connected-person transactions when they exceed the following thresholds:

• Related Party Transactions:
• • AED 40 million in aggregate, and
  • AED 4 million per category
• Connected Persons:
• • Transactions exceeding AED 500,000

These disclosures form part of the corporate tax return submission.

Ø  Transfer Pricing Documentation

The UAE adopts the three-tiered OECD documentation model, comprising:

1. Master File – Overview of the multinational group, global TP policies, and income allocation.
2. Local File – Details of specific intercompany transactions within the UAE.
3. Country-by-Country Report (CbCR) – For MNEs with consolidated revenue over AED 3.15 billion, showing revenue, income tax paid, and activities by jurisdiction, etc.

As per Article 55 of the UAE Corporate Tax Law, a business must maintain both a Master File and Local File if during the tax period it:

• Belongs to a multinational group with total consolidated group revenue ≥ AED 3.15 billion, or
• Has annual revenue ≥ AED 200 million.

Transfer pricing documentation must be maintained contemporaneously and provided to the Federal Tax Authority (FTA) upon request.

Key Lessons from the First Filing

1.     Transfer Pricing and Corporate Tax: A Connected Framework

Under the Corporate Tax law, transactions with related parties and connected persons must be conducted at arm’s length prices.

However, during the first filing cycle, many businesses were unable to justify their intercompany pricing with interest-free loans, shareholder drawings, and intercompany fund transfers being common practices.

Where such transactions are not supported by adequate documentation or fail to meet the arm’s length standard, appropriate transfer pricing adjustments should be made in the corporate tax return.

The first filing period clearly emphasized the need for a robust transfer pricing analysis to ensure that transactions reflects the underlying economic substance of the business and carry out at arms length price.

2.     Documentation is Not Optional — It’s Mandatory

Article 55 requires businesses to maintain proper transfer pricing documentation.

Even companies below the documentation threshold must submit a Transfer Pricing Disclosure Form if they have related-party transactions exceeding the prescribed disclosure limits. Additionally, regardless of threshold requirements, businesses are expected to demonstrate that all transactions have been conducted at arm’s length.

During the first filing season, many companies faced challenges in justifying their intercompany arrangements due to insufficient documentation or informal agreements, including instances such as salary payments to owners.

Going forward, maintaining up-to-date documentation supported by a clear business rationale will be crucial to ensure compliance and withstand any review by the tax authority.

3.     Substance Over Form: The Functional-Risk-Asset (FAR) Analysis

A key part of transfer pricing compliance is the Functional-Risk-Asset (FAR) analysis, which examines:

• Functions performed
• Risks assumed
• Assets used

The first filing season revealed that the profit allocation and remuneration models of some companies were not aligned with their actual business activities.

Making corrections afterward proved difficult, highlighting the importance of conducting FAR analyses early.

Businesses that did not consider transfer pricing requirements when designing their business structures often struggled to realign their models later to meet compliance standards.

4.     Early TP Planning Enhances Filing Efficiency

Companies that began TP planning early in the financial year had smoother compliance processes and were able to:

·         Identify related parties and connected persons

·         Draft or formalize intercompany agreements

·         Conduct benchmarking studies

·         Align accounting records with TP policies

Conversely, those that addressed TP at year-end faced tight deadlines, missing documentation, and unjustified pricing structures.

Each transaction with a related party should be supported by a formal agreement clearly outlining the scope of work, pricing basis, and payment terms, similar to transactions with independent third parties.

Key Takeaway

The first UAE corporate tax filing season demonstrated that transfer pricing is not just a technical compliance requirement, it is the foundation for accurate and transparent tax reporting.

Going forward, every business should:

• Conduct regular intercompany reviews
• Update benchmarking studies
• Maintain comprehensive documentation and agreements
• Align substance with transfer pricing policies

Additionally, the UAE has introduced a Domestic Minimum Top-up Tax, effective 1 January 2025, for multinational companies with global revenue exceeding EUR 750 million (AED 3.15 billion).

Keeping up-to-date with all regulatory changes is therefore essential to ensure compliance and avoid potential risks.