Transfer Pricing • 9 min read • Updated: 2026-10-22

UAE Transfer Pricing Compliance: How to Justify Arm's Length Rates Between Related Parties & Pass FTA Audits (Articles 34–36)

Detailed statutory analysis of Transfer Pricing requirements in the UAE. Covers Articles 34-36, benchmarking methods, and Local File thresholds.

Executive Summary for Directors (TL;DR)

Articles 34 through 36 of UAE Corporate Tax Law mandate that all transactions between Related Parties and Connected Persons adhere strictly to the OECD Arm's Length principle. Under Ministerial Decision No. 97 of 2023, formal Local and Master Files must be compiled if group revenue exceeds AED 3.15B or entity revenue exceeds AED 200M. The FTA actively scrutinizes management fees, shareholder loans, and internal IP licensing, with authority to adjust taxable income and levy severe underpayment penalties.

Author: Dinara Abdikairova, Licensed Tax Consultant (Meydan Free Zone License 2424100.01). 18+ years experience in UAE and cross-border taxation.

1. The Arm's Length Principle (Article 34)

Transactions between Related Parties must reflect market terms that independent parties would negotiate in comparable circumstances.

2. Local File & Master File Thresholds

Entities with revenue exceeding AED 200,000,000 or part of an MNE group with AED 3.15B turnover must maintain full statutory Transfer Pricing files.

Statutory Criteria, Rates & Penalty Matrix

Intercompany Transaction	Statutory Limit / Condition	Documentation Requirement	FTA Adjustment Exposure
Shareholder or affiliate loans	Arm's length benchmark	Written loan agreement with repayment schedule and commercial interest benchmark	Disallowance of interest deductions, 9% tax reassessment plus 14% annual interest
Director / connected person compensation (Art. 36)	Market compensation	Remuneration must match actual market rates for comparable roles in the UAE	Excess amount reclassified as non-deductible distribution of profit / dividends
Intra-group Management Fees	Cost-Plus (typical 5–10%)	Strict satisfaction of OECD Benefit Test, detailed timesheets and service deliverables	100% disallowance of management expense deduction upon FTA audit

Practical Case Studies

Financial Calculations in Dirhams (AED)

Case 1: Shareholder Loan at 15% Interest into Dubai Mainland LLC

A majority shareholder provided an AED 5,000,000 personal loan at an inflated 15% annual interest rate, deducting AED 750,000 to suppress entity taxable profit.

                  FTA requested transfer pricing documentation. Independent benchmark established arm's length rate at 6.5% (AED 325,000). The AED 425,000 excess was disallowed. Reassessed tax: AED 425,000 × 9% = AED 38,250 + AED 20,000 penalty. Total loss = AED 58,250.
                

Verdict: Lack of TP justification resulted in AED 58,250 in cash penalties and heightened audit scrutiny.

Case 2: Shared IT & Management Services from DIFC Parent to Operational LLC

A DIFC holding company billed AED 1,200,000 in centralised cloud software and legal support to its Dubai trading arm applying a verified 8% cost-plus markup.

                  Local file compiled with server logs, task tickets, and an OECD-compliant benchmark of 12 UAE providers (interquartile range 6%–11%). The AED 1,200,000 deduction was fully accepted by FTA. Corporate tax saved: AED 1,200,000 × 9% = AED 108,000.
                

Verdict: Robust documentation successfully protected AED 108,000 in corporate tax savings during audit.

Primary Regulatory Reference: Federal Decree-Law No. 47 of 2022 (Articles 34–36) & Ministerial Decision No. 97 of 2023

Published by AD TAX & ACCOUNTING L.L.C FZ, Meydan Free Zone, Dubai, UAE. Phone / WhatsApp: +971 50 526 20 96.

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