Definition

The Arm’s Length Principle is the standard applied in UAE Corporate Tax law to ensure transactions between related parties are priced as if they were conducted between independent parties.

Key points

• Basis of UAE transfer pricing regulations.
• Requires businesses to benchmark prices against market conditions.
• Applies to cross-border and domestic related party transactions.
• Documentation and justification are needed for compliance.

Practical example

A UAE company loans AED 1 million to its related entity at 0% interest. Under the arm’s length principle, the transaction must be adjusted to include a market interest rate.

Why it matters

Ensures fair taxation, prevents profit shifting, and aligns UAE tax law with international standards.