Transfer pricing is a key topic for businesses operating across borders. Simply put, it’s the pricing of goods, services, or intellectual property shared between related companies in different countries. With its growing economy and international business presence, the UAE has introduced clear rules around setting up a transfer pricing to ensure transparency and fair taxation.
If your business operates in the UAE and is part of a multinational group, setting up a solid transfer pricing policy is not just good practice—it’s a requirement under the UAE Corporate Tax Law. At JAKS, we help businesses in the UAE with transfer pricing. We also help you understand how much your business is worth, so you can make smart decisions and grow with confidence.
Practices for Setting Up a Transfer Pricing Policy
Let’s explore the best practices you should follow to ensure your transfer pricing policy is compliant and effective.
1. Understand the UAE Transfer Pricing Rules
The UAE introduced Corporate Tax on June 1, 2023. Transfer pricing rules are part of this tax framework. These rules follow the OECD (Organisation for Economic Co-operation and Development) guidelines, which are accepted globally.
Before setting up your policy, study the UAE Corporate Tax Law and its detailed guide on transfer pricing. Understand key terms like:
- Arm’s length principle – transactions between related parties should be priced like they were between unrelated parties.
- Related parties and connected persons – know who falls under this.
- Transfer pricing documentation – learn what documents you need to maintain.
2. Identify All Related Party Transactions
Start by listing all related party transactions in your business. These may include:
- Sales or purchases of goods and services
- Loans or financing arrangements
- Royalties or licence fees
- Management and technical support services
Map out the related parties—this includes your parent company, subsidiaries, sister concerns, and sometimes individuals with significant control.
Once you have a clear list, focus on documenting the purpose and pricing of each transaction.
3. Apply the Arm’s Length Principle
This is the backbone of any transfer pricing policy. To do this right, compare your related-party transactions to similar transactions between independent companies. There are five common methods to do this:
- Comparable Uncontrolled Price (CUP) Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method (TNMM)
- Profit Split Method
Choose the method that best suits your transaction type. You may also need to use more than one for different transactions.
4. Prepare Transfer Pricing Documentation
The UAE requires two main types of documents:
- Master File – contains global information about your group.
- Local File – includes detailed data on your UAE transactions with related parties.
Maintain a clear Transfer Pricing Policy Document that outlines:
- Your pricing methods
- Why were the methods selected
- Comparables used in the analysis
- How arm’s length prices were determined
Having this ready helps you during audits and ensures you comply with tax laws.
5. Stay Consistent and Update Regularly
A good policy isn’t just created once and forgotten. Your business may grow, open new branches, or change its services. Check whether your transfer pricing policy still fits whenever something changes in your structure or operations. Review your policy:
- At least once a year
- Whenever you start new transactions with related parties
- When local or international tax rules change
Keeping it up to date avoids surprises during audits and ensures continued compliance.
6. Use Reliable Comparables and Benchmarking
You need reliable market data to show that your prices are at arm’s length. Use benchmarking studies to compare your transaction prices with those of similar ones.
Choose comparables:
- From similar industries
- With similar risk profiles and market conditions
- From the same or similar geographical areas (preferably the UAE or GCC)
Databases and consultancies provide this kind of data. Make sure you document your source and selection method.
7. Train Your Team and Seek Expert Advice
Everyone involved in pricing and finance should understand the basics of transfer pricing. Provide training to your accounting, finance, and tax teams. Also, stay in touch with tax advisors or consultants familiar with UAE tax law and OECD guidelines. Their support is especially important when preparing documents or responding to the Federal Tax Authority (FTA) queries.
8. Monitor Audit Risks and Stay Transparent
The FTA may audit your transactions, especially if they seem unusual or inconsistent. A strong transfer pricing policy reduces your audit risk. Stay transparent with the FTA. If they ask for documentation, provide it on time and in full. This shows that your business is well-managed and compliant.
Setting up a strong transfer pricing policy in the UAE is no longer optional—it’s essential. By following these best practices, your business will stay compliant, avoid penalties, and build trust with the authorities.
Start by understanding the rules, apply the arm’s length principle, document your methods, and review your policy regularly. And don’t hesitate to seek professional help if needed.
This proactive approach will protect your business and support its long-term growth in the UAE and beyond.
At JAKS, we help businesses handle transfer pricing correctly. We ensure that the prices between your company branches in different countries follow tax rules. This helps you avoid fines, reduce checks from tax officers, and run your business smoothly. Stay safe with taxes and save money with our help. Call us at +971 503372712 or email [email protected]—we’re here to help!
