UAE Transfer Pricing Rules 2026 — Complete Guide for Free Zone Companies
UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) introduced comprehensive transfer pricing rules effective from 1 June 2023. For free zone companies transacting with related parties — including group companies, parent companies, and controlled entities — UAE transfer pricing rules are mandatory. This complete guide covers UAE transfer pricing for 2026.
What is UAE Transfer Pricing?
Transfer pricing refers to the pricing of transactions between related parties (connected persons). UAE CT Law requires that all transactions between related parties be priced at arm’s length — meaning at the price that would be agreed between independent parties in comparable circumstances. The arm’s length principle is the foundational principle for UAE transfer pricing.
UAE Transfer Pricing Scope
UAE transfer pricing rules apply to:
- All UAE taxable persons (including free zone persons) with related party transactions
- Related parties: persons with 50%+ common ownership; individuals with significant control or influence; spouses, family members in certain cases
- Controlled transactions include: sale of goods, provision of services, royalties, interest on loans, financial guarantees, cost-sharing arrangements
Transfer Pricing Documentation Requirements
UAE businesses with related party transactions above AED 40M/year must maintain a Master File and Local File:
- Master File: group-level information about the global business, value chain, intercompany policies
- Local File: UAE entity’s specific related party transactions; functional analysis; benchmarking studies
- Threshold for filing: upon FTA request; no automatic filing required for Master File/Local File
Country-by-Country Reporting (CbCR)
UAE CbCR applies to UAE-resident ultimate parent entities of multinational groups with AED 3.15B+ consolidated revenue (approximately USD 860M). UAE has signed the Multilateral Competent Authority Agreement for CbCR information exchange with 90+ countries. UAE-headquartered multinationals above the threshold must file CbCR with FTA.
Transfer Pricing Methods
UAE CT Law recognises the OECD’s five standard transfer pricing methods:
- Comparable Uncontrolled Price (CUP): compare price with identical/similar transactions between third parties
- Resale Price Method (RPM): for distributors; resale price minus appropriate gross margin
- Cost Plus Method: for manufacturers; cost plus appropriate markup
- Transactional Net Margin Method (TNMM): most commonly used in practice; compare net margin to comparable companies
- Profit Split Method: for highly integrated transactions
Transfer Pricing for Free Zone Companies
Free zone QFZP companies are particularly affected by transfer pricing in two scenarios:
- Services provided to UAE mainland group companies: must be at arm’s length; service fees that are not arm’s length may be recharacterised
- IP licensing to related parties: royalty rates must be at arm’s length; inflated royalties are a common FTA audit focus
Free zone companies should document their related party transactions carefully, as inappropriate transfer pricing not only risks tax adjustments but can affect QFZP qualifying income calculations.