Ahmed AbodaifPartner & Co-Founder
Key takeaways
- Transactions with related parties must be priced as if the parties were independent — the arm's-length principle.
- Payments to connected persons — owners, directors and their relatives — are deductible only up to market value.
- Master and local files are required only for large businesses (revenue of AED 200 million or a group of AED 3.15 billion or more).
- Smaller businesses still need simple evidence that prices are at market value, and may need to fill disclosure schedules in the return.
The arm's-length principle
Under the Corporate Tax Law, the price of a transaction between related parties must be the price that independent parties would agree in similar circumstances. If it is not, the FTA can adjust your taxable income. Common methods to support a price include comparable uncontrolled prices, resale price, cost plus, the transactional net margin method and profit split.
Who counts as related
- Individuals related by blood or marriage up to the fourth degree, including through adoption or guardianship.
- A person and a company where that person, alone or with related parties, owns or controls 50% or more.
- Two companies where a third person owns or controls 50% or more of each.
- A business and its partners in a partnership, and a company and its branches or permanent establishments.
Connected persons: payments to owners and directors
Separate rules apply to connected persons — owners with a 50% or greater stake, directors and officers, and their related parties. A payment or benefit to a connected person is deductible only to the extent it is at market value and incurred wholly and exclusively for the business. Typical examples:
- Salary and bonuses paid to an owner-manager.
- Rent paid to the owner or a relative for the office or warehouse.
- Consulting or management fees paid to a director's other company.
Anything above market value is added back to taxable income.
Documentation and disclosure
| Requirement | Who it applies to |
|---|---|
| Arm's-length pricing and basic evidence | Every taxable person |
| Transfer pricing disclosure in the Corporate Tax return | Where related-party transactions exceed AED 40 million in the period, with a separate schedule for payments to connected persons above AED 500,000 |
| Master file and local file | Revenue of AED 200 million or more, or part of a group with consolidated revenue of AED 3.15 billion or more |
Master and local files must be provided within 30 days of an FTA request. Businesses that elect Small Business Relief are not required to prepare transfer pricing documentation, though their prices should still be at market value.
Where small and medium businesses get caught
- Interest-free loans between sister companies or from the owner.
- Management fees charged between group companies without a written agreement or a clear benefit.
- Goods moved between a mainland and a free zone company under common ownership at cost, which also matters for the free zone 0% rate.
- Owner salaries far above or below what the role would cost on the market.
- Shared costs such as staff, rent or software split between companies without an allocation key.
A simple compliance routine
- List all related parties and connected persons and every transaction with them.
- Put written agreements in place for loans, services, rent and cost sharing.
- Keep simple market evidence: quotes, rent comparisons, salary benchmarks, interest rates.
- Book intercompany transactions consistently in both companies and reconcile balances every month.
- Check the disclosure thresholds before filing the Corporate Tax return.
How Business Future CPA helps
We map related-party and connected-person transactions, set up intercompany agreements and cost allocations, prepare benchmarking support and complete the disclosure schedules in your return. See our Corporate Tax services and the full UAE Corporate Tax guide.
Frequently asked questions
Does transfer pricing apply to small businesses in the UAE?
Yes. The arm's-length principle applies to every taxable person. Small businesses usually do not need master or local files, but they should keep basic evidence that related-party prices and payments to owners are at market value.
Can I pay myself any salary from my company?
You can pay any salary, but for Corporate Tax only the amount that reflects market value for the work you do is deductible. The excess is added back to taxable income.
When are a master file and local file required?
When revenue is AED 200 million or more, or the business is part of a group with consolidated revenue of AED 3.15 billion or more. They must be provided within 30 days of an FTA request.
Official sources: UAE Ministry of Finance · Federal Tax Authority (FTA)
This guide is general information based on UAE legislation and official announcements as at the date shown. It is not tax or legal advice for your specific situation — talk to us before you act.