On 23 October 2023, the UAE Federal Tax Authority (FTA) issued the Transfer Pricing Guide (TP Guide), offering practical insights for companies on Transfer Pricing (TP) rules under the UAE Corporate Tax Law.
Transfer pricing refers to determining the value of goods and services exchanged between related parties (e.g., subsidiaries of a UK multinational corporation) to ensure prices are fair, market-aligned, and compliant with regulations.
The TP Guide aligns closely with the OECD Transfer Pricing Guidelines, providing a framework for UK companies operating in the UAE to:
Under UAE Corporate Tax Law, transfer pricing applies to related-party transactions involving the sale of goods, provision of services, licensing of intangible assets, and other activities that may influence taxable income. The rules ensure that prices mirror what independent parties would agree upon under similar conditions, preventing profit shifting or tax avoidance.
Includes entities or individuals with ownership or control relationships. Examples:
By understanding these definitions, UK companies can ensure compliance with UAE regulations and avoid costly penalties.
In the context of Transfer Pricing (TP) and Corporate Tax (CT), the principle of “substance over form” means that the economic reality of a transaction should take priority over its legal structure when determining tax treatment.
For UK businesses with UAE operations, this principle is especially important in related-party transactions, where group entities deal with each other.
Tax authorities will assess the actual commercial purpose and outcome of a transaction—not just how it is documented.
The arm’s length principle is at the heart of transfer pricing compliance. It requires related-party transactions to be priced as if the parties were independent and dealing under normal market conditions.
This ensures the transaction reflects both market value and economic substance, reducing the risk of disputes with UAE tax authorities.
The OECD Transfer Pricing Guidelines—widely followed by the UAE—outline best practices for applying the arm’s length principle and substance-over-form approach.
For UK multinational groups, these guidelines provide a globally recognized framework that aligns UAE rules with international standards.
As part of the OECD’s three-tiered TP documentation framework, UK companies with UAE operations may be required to prepare:
This documentation is essential for demonstrating compliance and supporting TP positions during audits.
For UK businesses, intra-group transactions with UAE entities may include:
Sale of goods or services between group companies.
Provision of management, administrative, or support services.
Licensing of intellectual property (trademarks, patents, software).
Shared R&D activities.
Intercompany financing arrangements such as loans or guarantees.
Maintaining accurate records and arm’s-length pricing for these transactions helps UK businesses mitigate transfer pricing risks in the UAE.
Flyingcolour® Tax Consultant and J N J Auditing LLC provide accounting and bookkeeping services, tax related services, auditing, economic substance regulation (ESR) services, anti-money laundering compliance services, tax residency certificate assistance, payroll services, excise tax services, other compliance, and CFO services, etc. through our team of experienced professionals. we cover comprehensive and customized packages tailored to your specific requirements.
