Transfer Pricing in UAE for UK Businesses

 

Transfer Pricing Guide for UK Businesses in the UAE

 

On 23 October 2023, the UAE’s Federal Tax Authority (FTA) published the official Transfer Pricing Guide (TP Guide). For Indian companies operating in the UAE, this guide offers important insights and practical guidance on the Transfer Pricing (TP) rules and regulations under the Corporate Tax Law of the United Arab Emirates (UAE CT Law).
 

Transfer pricing refers to the process of determining the value of goods and services exchanged between related parties, such as an Indian parent company and its UAE subsidiary, to ensure that the prices are fair and consistent with market conditions.

 

 

For UK multinationals operating in the UAE, it is important to note that the UAE’s Transfer Pricing (TP) Guide is aligned with the OECD Guidelines. The guide provides general guidance on the UAE TP framework and includes practical examples on topics such as identifying Related Parties and Connected Persons, conducting a functional analysis, and determining pricing for intra-group financing transactions.
 

In the UAE, transfer pricing is governed by the Federal Tax Authority (FTA) and applies to entities involved in transactions with related parties. These regulations are designed to prevent tax avoidance and ensure that multinational companies, including those from the UK, meet their tax obligations in the UAE.
 

Under the UAE Corporate Tax Law, transfer pricing rules apply to related-party transactions including the sale or purchase of goods, provision of services, use of intangible assets, and other transactions that affect the taxable base. The law requires that transfer prices are set on an arm’s length basis, meaning they must reflect the prices that would be agreed upon by independent parties under similar circumstances.

The following are the relevant keywords important to understand Transfer Pricing as per the Corporate Tax Law
 

Related Parties
 

Includes entities or individuals with ownership or control relationships. Examples:

 

  • Controlled Entities: UK parent companies and their UAE subsidiaries

 

 

  • Key Management: Directors or executives with decision-making authority.

 

 

  • Close Family Members: Immediate relatives with significant business involvement.

 

 

  • Entities under Common Control: Companies owned by the same UK-based group.

 

 

  • Entities with Significant Influence: Entities influencing or being influenced by others in strategic decisions.

 

By understanding these definitions, UK companies can ensure compliance with UAE regulations and avoid costly penalties.

 

Substance over Form

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.

Arm’s Length Principle

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.

OECD Guidelines

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.

Master File and Local File

As part of the OECD’s three-tiered TP documentation framework, UK companies with UAE operations may be required to prepare:

  • Master File – A global overview of the multinational group’s business, value chain, and transfer pricing policies, providing tax authorities with context on the group’s operations.
  • Local File – Jurisdiction-specific documentation detailing the UAE entity’s transactions, functional analysis, and application of TP methods.

This documentation is essential for demonstrating compliance and supporting TP positions during audits.

Intra-group transactions

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.

Frequently Asked Questions

Relevant Blogs

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Transfer Pricing under the UAE Corporate Tax Law

Transfer Pricing under the UAE Corporate Tax Law Transfer pricing refers to determining the value...

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Requirements For Maintaining Transfer Pricing Documentation

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Qualifying Group Relief in UAE Corporate Tax

Qualifying Group Relief in UAE Corporate Tax The United Arab Emirates (UAE) has recently implemented...

Service Spectrum

To support the success of UK businesses in the UAE, Flyingcolour® Tax Consultant and J N J Auditing LLC offer a wide range of professional services delivered by our highly experienced team.
 

Our expertise covers core financial management services, including accounting, bookkeeping, and comprehensive auditing, complemented by strategic tax advisory. We also assist clients in navigating the UAE’s regulatory environment, providing guidance on Economic Substance Regulations (ESR), Anti-Money Laundering (AML) compliance, excise tax matters, and obtaining Tax Residency Certificates.
 

In addition, our operational support services, including payroll management and outsourced CFO solutions, are designed to enhance efficiency and streamline business operations. We focus on delivering comprehensive and customised service packages that cater to the unique requirements and objectives of each UK client operating in the UAE.

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