Transfer pricing regimes are layered by design. Arm’s length principle is universal and sits beneath; with disclosures and documentation layer stacked above – each with its own materiality cut. The Transfer pricing (TP) architecture is global, BEPS-aligned, and entirely orthodox; the UAE’s calibration is its own.
Thresholds – leading to differences in positions
Transfer pricing regulations in UAE have chosen not to adopt a uniform master threshold for TP compliances. This adds to some nuances when controlled transaction(s) are examined against each of the prescribed thresholds. A taxpayer can sit inside one and outside another at the same time.
For UAE taxpayers gearing up for the second compliance cycle, it means learning from the first-year experience and revisiting transfer pricing positions taken in the absence of precedent. Some areas warrant a closer examination; let’s begin with thresholds.
For related party transactions, the related party schedule of TP Disclosure Form (TPDF) is required once their aggregate value — taken from the financial statements or at market value — exceeds AED 40 million; only those categories whose value exceeds AED 4 million then need to be disclosed. In relation to connected person (CP) transactions, the connected person schedule is required where the aggregate payment or benefit to any one connected person, together with their related parties, exceeds AED 500,000. Some useful insights and clarification have been provided in the FTA’s Corporate Tax Public Clarification (CTP010), in relation to CP transactions.
Under transfer pricing regulations in UAE, TP documentation as outlined in Article 55 read with Ministerial Decision 97 of 2023 — Local File and Master File — turns on a different measure: AED 200 million of entity revenue, or if the entity is part of an MNE group with consolidated revenue at or above AED 3.15 billion. Furthermore, the Ministerial Decision also outlines certain transactions or arrangements that are excluded from the Local File.
Disclosure and documentation thus sit a fivefold distance apart, measuring different things — one the size of the dealings, the other the size of the entity or its group. The layers do not move together: a taxpayer can clear one and fall inside another at once, in either direction. Taxpayers tend to misjudge the mismatch, not the individual numbers — an easy error to make where precedent is thin.
Article 34 of the UAE Corporate Tax Law (UAE CT Law), meanwhile, prescribes no threshold at all — the arm’s length principle binds regardless.
Reverse-engineering compliance from the Disclosure Form
A recurring mistake is to treat the Disclosure Form as the starting point for determining compliance. Taxpayers often infer their entire transfer pricing position solely from its thresholds. Where a transaction falls below the AED 40 million related party aggregate or the AED 500,000 connected person threshold, the typical conclusion is: “no schedule, no documentation, no issue.”
This approach is flawed. The Disclosure Form is a reporting tool, not a determinant of underlying compliance obligations. The examples below illustrate where this reasoning breaks down:
Example 1: Local File criteria not met, but TPDF triggered
Scenario: A mainland manufacturing entity has total revenue of AED 180 million and annual related-party transactions of AED 55 million (intercompany supply of goods from a parent entity in Germany). The entity is not part of an MNE group with consolidated revenues at or above AED 3.15 billion.
Blind Spot: In the instant case, the mainland entity is required to fill TPDF but has no obligation to prepare a Local File. TPDF requirement is to disclose the arm’s length value and the TP method — yet no Local File is triggered to formally back those numbers up. The Article 34 obligation remains; only the documentation discipline is absent.
Exposure: On enquiry, with no contemporaneous documentation, reconstructing arm’s length analysis may pose challenges.
Example 2: Local File criteria met, but TPDF not triggered
Scenario: In the earlier example, if total revenue was AED 280 million and annual related-party transactions were AED 35 million.
Blind Spot: In this case, the entity is not required to fill TPDF but has obligation to prepare for the LF. This is the most counterintuitive scenario — the bigger obligation (Local File, a full benchmarking exercise) is triggered while the smaller obligation (a disclosure schedule) is not. It demonstrates that the two regimes genuinely run on parallel rails.
Exposure: Entities below the AED 200 million threshold conclude that TP documentation is not required, and slide from there into the assumption that the substantive obligation is also relaxed. It is not. Article 34 does not see the AED 200 million line: the arm’s length determination must still be made, and relevant contemporaneous documentation is still expected on enquiry.
Example 3: Neither Local File nor TPDF criteria met
Scenario: A mainland entity (AED 190 million revenue) receives headquarter services from its free zone fellow-subsidiary, paying AED 20 million a year for them. The free zone entity’s revenue is primarily from these services, and neither entity meets the thresholds for Local File preparation.
Blind Spot: On threshold alone, both entities fall outside the documentation and disclosure net. The intuitive conclusion is that nothing is required.
Exposure: That conclusion does not hold. Article 34 applies to the AED 20 million charge regardless of any threshold — the fee must be at arm’s length for the mainland’s deduction and the free zone entity’s income alike. Whilst no Local File is triggered (strictly), the arm’s length obligation does not soften: the entity is expected to hold contemporaneous support as though one applied. The free zone side raises the stakes. Since the headquarter service fee is the free zone entity’s principal income, its arm’s length result does more than determine the mainland deduction — it determines whether the 0% rate holds. Priced wrong or left undocumented, it risks the free zone entity’s QFZP status on enquiry, for the breach year and the four that follow.
The implication
UAE Transfer pricing compliance cannot be built downward from the Disclosure Form. The questions the TPDF asks are narrower than the questions the regime asks, so a posture anchored to the form will be structurally under-inclusive – and on enquiry, it is the substantive layer, the arm’s length position itself, that the FTA examines first. A taxpayer who checks only whether a schedule or a file is triggered can clear every threshold and still be exposed on the obligation that matters most i.e., Article 34 – arm’s length principle.
Conclusion
None of this makes transfer pricing in UAE an outlier. The layered structure has been adopted by a number of countries. What sets UAE apart is simply how new it is; and there is limited precedent. However, the underlying point is that the architecture taxpayers must navigate in 2026 will not be the architecture of 2030; the discipline that stays constant is that the arm’s length principle is a universal obligation. Simply put, the thresholds only decide how much paperwork comes with it.
Please Contact
Amit Dattani
Head of Transfer Pricing
T: +971 4 2500 290
M: +971 54 305 3364
E: Amit.Dattani@claemirates.com
www.CLAemirates.com
