Cabinet Decision No. 97 of 2023
These refer to the circumstances that a business must prepare the Master File and Local File, mainly for multinational groups or companies crossing revenue thresholds.
Ministerial Decision No. 97 of 2023
The Decision gives guidance on transfer pricing documentation in the UAE, permissible transfer pricing methods, and comparability standards in the light of the OECD principles.
These regulations together assure that companies have justified their intercompany pricing, kept proper records, and shown evidence of compliance if requested by the FTA.
Documentation & Disclosures Every Business Should Know
If your company deals with related parties, you need to follow these steps:
- Arm’s Length Principle (ALP) - Every transaction should reflect fair market terms. The FTA might adjust or disallow payments of too much or too little-money transfers outside an arm's length transaction.
- Identifying Related Parties & Connected Persons- Includes subsidiaries, parent companies, joint ventures, directors, and officers. Sometimes affiliate businesses also fall under this category. Any transactions between these parties and others are therefore subject to TP scrutiny.
Thresholds for Documentation
- AED 40 million of related-party transactions → Transfer Pricing Disclosure Form (TPDF) required.
- AED 200 million UAE entity revenue or AED 3.15 billion global group revenue → Master File and Local File required.
- Global consolidated revenue ≥ AED 3.15 billion → Country-by-Country Reporting (CbCR) obligation.
Required Documentation
- TP Disclosure Form (TPDF): Filed with your Corporate Tax Return, summarizes related-party transactions.
- Master File: Shows group-level structure, operations, financing, and TP policies.
- Local File: UAE entity-specific transactions, risks, functions, and benchmarked pricing details.
- CbCR: For large MNEs, includes global revenue, profit allocation, and taxes paid.
Filing and Maintenance
- TPDF is submitted with the Corporate Tax Return, typically within 9 months after the financial year-end.
- Master and Local Files must be maintained and provided within 30 days of FTA request.
- CbCR filing deadlines depend on the group’s fiscal year-end.
- Benchmarking & Functional Analysis- Compare your transactions with similar independent companies and choose the right method- CUP, TNMM, Cost-Plus, or others. Document why your method is appropriate.
Common Challenges & Risk Areas
Many businesses stumble on:
- Underestimating the complexity of documentation.
- Missing thresholds: Slightly exceeding AED 40 million or AED 200 million can trigger documentation obligations.
- Delayed or incomplete financials: Hinders benchmarking and TP analysis.
- Incorrect method selection: Inappropriate comparables or methods can cause tax adjustments.
- Free Zone considerations: TP obligations remain even with Free Zone incentives.
- Record-keeping gaps: FTA requests TP files within 30 days, and missing documents are penalized.
Practical Steps to Ensure Compliance
- Underestimating the complexity of documentation.
- Map all related-party transactions Document all intercompany payments, service agreements, and internal charges.
- Collect historical data Gather financial statements, allocations, costs, and invoices for analysis.
- Select a TP method Choose the best approach for your transactions (CUP, Cost-Plus, TNMM) and maintain comparables.
- Prepare Master & Local Files early Even if not immediately required, early preparation reduces last-minute stress.
- Set up controls and documentation systems Track Related-party transactions with respective approvals and supporting evidence.
- Audit-ready financial statements Your audit statements should ideally be reconciled with TP documentation to avoid adjustments.
- Monitor thresholds and legal updates Stay updated on FTA guidelines and ministerial decisions impacting TP obligations.
Penalties & Consequences
Non-compliance can result in:
- Denial of deductions for non-arm’s-length payments.
- Tax adjustments increasing liability.
- Fines for late or missing submissions of TPDF, Master/Local Files, or CbCR.
- Loss of Free Zone benefits.
- Increased audit and reputational risk.
Recent Trends
- FTA is strictly enforcing deadlines. For example, companies with a fiscal year ending 31 December 2024 must file TPDF by September 2025.
- Clarifications around Free Zone entities continue, but TP rules apply broadly.
- Companies increasingly use professional benchmarking databases to strengthen documentation.
- FTA audits for TP compliance are becoming more frequent.
Summary
Transfer pricing in the UAE Corporate Tax system has changed to be a mandatory procedure. The companies that have related-party transactions, high revenues, or are part of multinational groups need to keep their documentation, provide justification for their pricing, and be audit-ready at all times. Proper planning can minimize penalties and at the same time, ensure that the UAE corporate tax rules are followed without difficulty.
If you’re unsure whether your business meets transfer pricing thresholds, or need help preparing Master Files, Local Files, or a TP Disclosure Form, Parsh.ae can guide you. We handle all aspects of corporate tax compliance, benchmarking, and audit-ready documentation to keep your business safe and compliant. Contact us today.