Recent Updates to UAE Excise Tax Laws: What’s New for 2025?
February 26, 2025
No Comments
With the introduction of corporate tax in the UAE, businesses must now pay closer attention to transfer pricing regulations to ensure full compliance with tax laws.
Transfer pricing affects companies that conduct transactions between related entities, including multinational corporations, group subsidiaries, and holding companies.
As the UAE aligns itself with OECD transfer pricing guidelines, businesses must ensure that all intercompany dealings reflect fair market value to avoid tax adjustments and penalties.
For companies engaged in cross-border trade, intercompany financing, intellectual property transactions, or shared service agreements, transfer pricing compliance is no longer optional.
The Federal Tax Authority (FTA) is implementing strict rules to prevent profit shifting and tax avoidance, requiring businesses to maintain detailed documentation, pricing justifications, and tax reporting transparency.
Understanding how transfer pricing works in UAE corporate tax compliance is essential for businesses looking to reduce risks, optimize tax positions, and maintain a solid reputation with tax authorities.
This article explores the key role of transfer pricing, how businesses can ensure compliance, and strategies for structuring intercompany transactions efficiently under UAE tax laws.
Transfer pricing refers to the pricing of transactions between related entities, such as subsidiaries, parent companies, or sister companies within the same corporate group.
These transactions can include the sale of goods, provision of services, licensing of intellectual property, or intercompany loans.
The purpose of transfer pricing rules is to ensure that these transactions are conducted at arm’s length, meaning they must be priced similarly to transactions between independent businesses in a free market.
As the UAE aligns its tax framework with OECD guidelines and global best practices, businesses must ensure that their transfer pricing policies comply with corporate tax laws.
Failure to adhere to these rules can result in tax audits, financial penalties, and adjustments to taxable income, leading to increased tax liabilities.
For multinational corporations and UAE-based companies with international operations, transfer pricing compliance is critical to avoiding double taxation, maintaining tax treaty benefits, and ensuring smooth cross-border transactions.
Companies that do not document their transfer pricing policies correctly may find themselves under tax scrutiny, facing unexpected liabilities that can impact profitability and cash flow.
Transfer pricing does not just impact tax compliance—it influences how businesses allocate profits, manage costs, and structure their financial operations.
Companies that properly manage transfer pricing can optimize their corporate tax position, ensuring that taxable income is distributed efficiently across parent companies, subsidiaries, and affiliated entities.
For example, a UAE-based parent company providing strategic management services to its foreign subsidiaries must charge a fair market rate for these services.
If the fee is set too high, the foreign subsidiary may reduce its taxable income significantly, leading to challenges with tax authorities in the subsidiary’s jurisdiction.
If the fee is set too low, the UAE entity may be seen as underreporting taxable income, resulting in tax adjustments and penalties.
To avoid these issues, businesses should adopt a clear transfer pricing policy that ensures:
With the introduction of corporate tax in the UAE, tax authorities are now focusing on ensuring transparency in related-party transactions.
The days of informal intercompany pricing structures are over—businesses must now prove that profits are distributed fairly and reported accurately.
The UAE’s commitment to OECD Base Erosion and Profit Shifting (BEPS) guidelines means that businesses engaging in cross-border transactions or group structures must ensure that profits are taxed where real economic activity takes place.
This is especially relevant for companies that use the UAE as a regional headquarters or financial hub.
If a company is found to be manipulating transfer prices to shift profits artificially, the FTA can reassess taxable income, impose fines, and demand additional tax payments.
This makes transfer pricing compliance not just a legal requirement but a crucial aspect of risk management for UAE businesses.
Transfer pricing regulations in the UAE follow the OECD Transfer Pricing Guidelines, ensuring that transactions between related parties are conducted at fair market value.
The UAE’s corporate tax framework now requires businesses to justify their pricing policies for intercompany transactions, especially those involving cross-border dealings, service agreements, intellectual property transfers, and financial arrangements.
The arm’s length principle is the foundation of transfer pricing regulations in the UAE. This principle requires businesses to price transactions between related entities as if they were conducted between independent parties in an open market.
The goal is to prevent companies from artificially shifting profits to low-tax jurisdictions or manipulating transaction values to minimize taxable income.
To comply with the arm’s length principle, businesses must use internationally recognized transfer pricing methods, such as comparable uncontrolled price (CUP), resale price method, cost-plus method, transactional net margin method (TNMM), or profit split method.
The choice of method depends on the nature of the transaction, industry practices, and availability of comparable market data.
For example, a UAE-based subsidiary providing IT services to its parent company abroad must charge a price that is comparable to what an independent IT firm would charge for similar services.
If the pricing is significantly lower than the market standard, the FTA may adjust taxable income and impose additional corporate tax liabilities.
The UAE requires businesses engaged in related-party transactions to maintain proper transfer pricing documentation, ensuring full transparency in tax filings and compliance audits.
Companies must prepare detailed records that justify their intercompany pricing, including:
Companies that fail to prepare, maintain, or submit transfer pricing documentation may face audit risks, tax adjustments, and financial penalties from the FTA.
Ensuring that all intercompany transactions are properly documented, priced at market rates, and supported by economic data is essential for maintaining compliance under UAE corporate tax regulations.
Transfer pricing compliance is not just about setting the right prices for intercompany transactions—it involves detailed documentation, economic analysis, and risk management.
Businesses operating in the UAE must navigate complex regulatory requirements, ensure alignment with OECD guidelines, and anticipate potential tax audits.
Without proper planning, companies may face unexpected tax liabilities, disputes with authorities, and compliance penalties.
One of the biggest challenges businesses face is determining the correct pricing for intercompany transactions.
Unlike independent third-party transactions where market forces dictate pricing, related-party transactions require businesses to justify their pricing models using financial data and market benchmarks.
For example, a UAE-based holding company providing management services to its international subsidiaries must charge a reasonable service fee that reflects industry standards.
If the fee is too high, tax authorities in the subsidiary’s jurisdiction may argue that profits are being artificially shifted to the UAE.
If the fee is too low, the UAE’s Federal Tax Authority (FTA) may adjust the holding company’s taxable income, increasing its corporate tax liability.
To mitigate this risk, businesses should conduct benchmarking studies, comparing their pricing models with similar transactions in the open market.
Companies should also review their contracts, financial records, and profit margins to ensure they can defend their pricing structures in case of an audit.
Many businesses struggle with preparing and maintaining transfer pricing documentation, which is now a key requirement under UAE corporate tax laws.
The Local File, Master File, and Country-by-Country Report (CbCR) must be prepared according to strict guidelines, and missing or inaccurate documentation can lead to penalties and tax adjustments.
For companies operating in multiple jurisdictions, compliance becomes even more challenging, as they must ensure that their transfer pricing policies are aligned across different tax authorities.
Any inconsistencies in reporting can trigger tax audits in multiple countries, leading to double taxation risks.
To avoid these challenges, businesses should establish internal compliance frameworks, implement automated tax reporting tools, and work with tax advisors to ensure that all transfer pricing documentation meets UAE regulatory requirements.
Multinational businesses must also consider cross-border tax risks, as transfer pricing regulations apply not just within the UAE but in all jurisdictions where the company operates.
If a related-party transaction is mispriced or incorrectly reported, different tax authorities may impose conflicting tax adjustments, leading to double taxation—where the same income is taxed twice in different countries.
To mitigate double taxation risks, businesses should leverage UAE’s network of double tax treaties (DTTs), which allow for tax relief mechanisms such as tax credits and exemptions.
Proper structuring of intercompany transactions, ensuring alignment with bilateral tax agreements, and engaging in proactive tax dispute resolution mechanisms can help businesses protect their profits from unnecessary tax burdens.
With increasing corporate tax enforcement in the UAE, businesses must take a proactive approach to transfer pricing compliance.
Ensuring that intercompany transactions are structured correctly, properly documented, and aligned with market standards will help companies avoid tax penalties and audit risks.
Implementing robust compliance measures and adopting strategic tax planning techniques can significantly enhance a business’s ability to manage transfer pricing risks effectively.
A fundamental step in ensuring compliance is conducting benchmarking studies to justify transfer pricing policies.
Since tax authorities require businesses to price intercompany transactions at arm’s length, companies must analyze comparable transactions in the open market to establish fair pricing.
For example, a UAE-based digital marketing firm providing services to its foreign parent company must charge a service fee that reflects standard industry rates.
By analyzing market pricing data from independent service providers, the business can support its pricing decisions and defend its tax position if challenged by the Federal Tax Authority (FTA).
Benchmarking studies must be updated regularly to reflect market changes, industry trends, and economic fluctuations.
Companies should also document the selection process for comparable transactions, ensuring that the methodology aligns with OECD guidelines.
Multinational corporations with subsidiaries in different countries must ensure that their transfer pricing policies are consistent across jurisdictions.
Inconsistencies in tax reporting can lead to disputes between tax authorities, double taxation, and unnecessary compliance risks.
For example, if a UAE-based company sells intellectual property rights to a related entity in another country, both jurisdictions must recognize the same transaction value.
If the UAE entity reports a lower sale price while the foreign subsidiary reports a higher expense, tax authorities in both countries may impose adjustments, leading to additional tax burdens.
To prevent these issues, businesses should implement a unified transfer pricing framework, ensuring that all intercompany transactions are structured in a transparent, justifiable, and consistent manner.
Engaging with tax professionals and legal advisors can help companies develop standardized pricing models and manage cross-border tax risks effectively.
With transfer pricing compliance becoming a priority for UAE corporate tax enforcement, businesses must establish internal governance structures to monitor and manage their tax obligations effectively.
Implementing automated tax reporting tools, internal audit mechanisms, and compliance checklists will help companies identify potential risks before they escalate into tax disputes.
A strong transfer pricing compliance program includes regular internal audits, transaction monitoring, and cross-border tax assessments to ensure that all intercompany dealings comply with UAE tax laws and international regulations.
Businesses should also train finance teams and tax departments on evolving transfer pricing requirements, ensuring that employees understand the importance of proper documentation, reporting, and compliance reviews.
Businesses operating in multiple jurisdictions must ensure that their transfer pricing policies align with UAE corporate tax laws while maintaining consistency across global operations.
A strong framework includes clearly defined pricing models for intercompany transactions, well-documented justifications for pricing methods, and continuous monitoring of financial flows.
For example, if a UAE-based company provides technical support services to its overseas parent company, it must demonstrate that the fees charged for these services are in line with market rates.
If the company undercharges or overcharges, it could lead to tax adjustments either in the UAE or the parent company’s country, resulting in unnecessary financial risks.
Conducting regular transfer pricing reviews ensures that pricing remains aligned with economic conditions, regulatory requirements, and industry benchmarks.
Beyond compliance, businesses should use transfer pricing to enhance financial efficiency and cash flow management.
By structuring intercompany transactions strategically, companies can manage tax liabilities effectively while ensuring that each entity within the group operates profitably.
For instance, a UAE holding company that licenses intellectual property (IP) to its subsidiaries must set appropriate royalty rates that reflect the actual value of the IP.
Charging inflated or artificially low royalty rates may trigger tax audits, as authorities could argue that profits are being shifted inappropriately between jurisdictions.
Using industry-specific benchmarks and independent valuations helps companies establish defensible pricing models that optimize tax efficiency without violating compliance rules.
As the UAE strengthens tax enforcement through digital platforms and AI-driven audit systems, businesses must integrate technology-driven solutions into their transfer pricing compliance frameworks.
Manual documentation and outdated financial reporting systems are no longer sufficient—companies must leverage automated tax software to track intercompany transactions, generate compliance reports, and conduct real-time benchmarking analyses.
Using AI-driven tax compliance tools, businesses can identify potential risks in intercompany pricing, automate document retention for tax audits, and ensure that financial data remains consistent across global entities.
These tools also help businesses stay ahead of regulatory changes, allowing them to adjust their transfer pricing models proactively rather than reacting to enforcement actions after an audit has begun.
As the UAE strengthens its tax framework, businesses must anticipate ongoing developments in transfer pricing regulations.
Compliance is no longer just about meeting basic reporting requirements—it is about integrating sustainable tax planning strategies that align with both local tax laws and global best practices.
Companies that fail to adapt may face increased scrutiny, financial penalties, and operational disruptions, while those that implement robust transfer pricing policies will benefit from regulatory stability and long-term tax efficiency.
The Federal Tax Authority (FTA) is expected to increase enforcement efforts around transfer pricing compliance, particularly for businesses engaging in high-value intercompany transactions, cross-border service agreements, and intellectual property transfers.
Companies should be prepared for more frequent tax audits, requiring them to maintain detailed financial records, pricing justifications, and economic analyses to support their tax filings.
Businesses that lack proper transfer pricing documentation or fail to demonstrate compliance with the arm’s length principle may face retroactive tax adjustments, leading to additional corporate tax liabilities and financial penalties.
Ensuring that pricing policies, financial statements, and intercompany agreements are aligned with regulatory standards will be critical in avoiding costly disputes with tax authorities.
With the implementation of Pillar Two of the OECD’s Global Minimum Tax (GMT), multinational enterprises with global revenues exceeding EUR 750 million must pay at least 15% corporate tax, regardless of where they operate.
While this rule directly impacts large multinational corporations, it also signals a broader trend toward stricter international tax compliance.
For UAE-based businesses, this means that transfer pricing policies must be aligned with global tax expectations, ensuring that profit allocation, intercompany financing, and tax structuring withstand cross-border regulatory reviews.
Even companies that fall below the GMT threshold should assess whether future tax policy changes could affect how intercompany transactions are taxed in the UAE and other jurisdictions.
Transfer pricing is no longer just a regulatory requirement—it is an essential part of corporate tax strategy.
Businesses must integrate transparent, well-documented, and market-aligned transfer pricing policies into their long-term financial planning to protect against tax risks while optimizing profitability.
Companies that invest in advanced tax compliance solutions, automated transfer pricing software, and expert tax advisory services will be better positioned to navigate the evolving UAE tax landscape.
By ensuring full compliance with corporate tax laws, maintaining structured financial records, and proactively managing tax risks, businesses can avoid costly disputes, enhance financial stability, and sustain long-term growth in the UAE.
Transfer pricing has become a critical factor in UAE corporate tax compliance, influencing how businesses report profits, structure transactions, and manage cross-border financial flows.
With the UAE’s commitment to international and OECD-aligned regulations, companies must take a proactive approach to compliance to avoid potential tax challenges.
By implementing robust documentation practices, ensuring pricing aligns with the arm’s length principle, and adopting forward-thinking tax strategies, businesses can maintain regulatory compliance, reduce audit risks, and optimize their corporate tax position.
For businesses seeking expert guidance on transfer pricing compliance, corporate tax structuring, and international tax planning, Protax Advisors provides specialized tax advisory services tailored to UAE-based companies.
Whether you need assistance with transfer pricing documentation, audit preparation, or strategic tax structuring, our team is here to support your business every step of the way.
Schedule a consultation call and learn how our expertise in accounting and tax services can benefit your business.