Definition

Transfer Pricing refers to the rules governing the pricing of transactions between related parties and connected persons. Under UAE Corporate Tax law, such transactions must follow the arm’s length principle to prevent profit shifting.

Key points

• Related party transactions include goods, services, loans, and royalties.
• Businesses must prepare transfer pricing documentation if they meet thresholds.
• Pricing must reflect what unrelated parties would agree under similar conditions.
• The FTA can adjust taxable income if transfer pricing rules are breached.

Practical example

A UAE parent company sells goods to its free zone subsidiary at below-market price. For tax purposes, the transaction must be adjusted to market value to ensure compliance.

Why it matters

Transfer pricing rules prevent tax avoidance and ensure fair taxation of multinational and group businesses in the UAE.