UAE introduces transfer pricing rules as part of Corporate Tax Law

Local contact

EY Global

16 Dec 2022
Subject Tax Alert
Categories Transfer Pricing
Jurisdictions United Arab Emirates
  • The Corporate Tax Law will be effective from 1 June 2023 and includes several transfer pricing (TP) provisions that are broadly aligned with Organisation for Economic Co-operation and Development (OECD) principles.

  • Transactions and arrangements between related parties and connected persons should meet the arm’s-length standard.

  • Businesses will be required to maintain TP documentation and submit a disclosure form, subject to meeting certain conditions.

  • Free zone persons can continue to maintain their 0% tax position, subject to meeting certain conditions, which include satisfying TP requirements.

  • Businesses may be able to apply for advance pricing agreements.

Executive summary

On 9 December 2022, the United Arab Emirates (UAE) Ministry of Finance (MoF) released Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law or the Law) to enact a new corporate tax (CT) regime in the UAE. The Law has been supplemented with 158 Frequently Asked Questions (FAQs), also released on the same date.

The new CT regime will become effective for accounting periods beginning on or after 1 June 2023, with a headline rate of 9%. For groups with a December year end, this provides for a 12-month period to prepare and assess the impact ahead of the effective date. However, general anti-avoidance and transitional rules do apply from the date the law is published in the Official Gazette.

The Law includes TP rules that apply to UAE businesses with respect to related party and connected persons transactions.

This Alert summarizes the key features of the UAE TP rules. For more details on other aspects of the Law, see EY Global Tax Alert, UAE Ministry of Finance releases Corporate Tax Law: Detailed review, dated 12 December 2022.

Detailed discussion

Arm’s-length principle

For the purposes of determining taxable income, transactions and arrangements with related parties and connected persons will need to comply with the arm’s-length principle. For purposes of the Law, any transaction or arrangement between an entity’s exempt activity and its non-exempt activity will also need to comply with the arm’s-length principle. The Law considers a transaction or arrangement with a related party or connected person to have met the arm’s-length principle if the outcome of such transaction is consistent with the outcome that would have been realized if the parties to the same transaction were not related or otherwise connected.

The FAQs clarify that domestic transactions are in-scope of the UAE TP rules. Furthermore, the FAQs state that related party transactions within a tax group will generally be disregarded for UAE TP purposes.

Taxable persons will need to determine arm’s-length prices using one or a combination of the following internationally recognized TP methods:

  • Comparable Uncontrolled Price method
  • Resale Price method
  • Cost Plus method
  • Transactional Net Margin method
  • Transactional Profit Split method

A taxable person may apply a TP method other than those listed above if the taxable person can reliably demonstrate that the above methods cannot be reasonably applied. Further, it is important to note that the UAE TP rules do not specify any particular order of preference for determining which TP method to apply.

In cases where the outcome of a transaction or arrangement between related parties does not meet the arm’s-length standard, the Federal Tax Authority (FTA) may adjust a person’s taxable income accordingly to achieve the arm’s-length result that appropriately reflects the facts and circumstances of the transaction or arrangement. In such cases, corresponding adjustments may also be available.

Related parties

Under the Law, parties to a transaction are considered related if they meet certain conditions. These conditions are broadly defined below:

  • Natural persons who are related up to the fourth degree of kinship or affiliation. This also includes affiliation through adoption or guardianship
  • A natural person and a juridical person, where the natural person (either alone or through one of its related parties) directly or indirectly owns the juridical person (i.e., has a 50% or more shareholding interest)
  • A natural person (whether alone or together with its related parties) has direct or indirect control over a juridical person
  • Two or more juridical persons, where one of the juridical persons (either alone or in conjunction with its related parties) directly or indirectly owns the other juridical person (i.e., has a 50% or more ownership interest)
  • A juridical person, (whether alone or in conjunction with its related parties), directly or indirectly controls another juridical person
  • Any person that (either alone or together with its related parties) has direct or indirect ownership (i.e., 50% or more) or controls two or more juridical persons
  • Persons and their permanent establishments
  • Partners in an unincorporated partnership
  • Trustees, founders, settlors, and beneficiaries of trusts or foundations and their related parties

For purposes of the Law, the term “control” can be broadly categorized as:

  • Having a 50% or greater share in the voting rights of another legal person.
  • Being able to determine the constitution of 50% or more of the Board of Directors of a legal person.
  • Being entitled to 50% or more of the profits of a legal person.
  • Having the ability to exert significant influence over the affairs and business operations of a legal person.
Connected persons

A person is construed to be “connected” to a business if the person meets at least one of the following conditions:

  • Is an owner of the business
  • A director or an officer in the business
  • A related party of any of the above (i.e., a relative within the fourth degree of kinship or affiliation)
TP documentation requirements

Businesses that meet certain conditions (to be prescribed in a future Ministerial Decision) will be required to maintain TP documentation (i.e., master file and local file). The TP documentation must be submitted to the FTA within 30 days following a request. Similarly, the FTA may request taxpayers to provide additional supporting information within 30 days of a request.

The Law does not provide further details on the content to be included in the master file and the local file; however, based on information previously disclosed by the MoF as part of the UAE CT Public Consultation Document, the requirements are expected to be broadly aligned with OECD standards.

Disclosure form

According to the Law, UAE businesses may need to file a disclosure together with their tax return, no later than nine months after the end of the financial year. The contents of the TP disclosure form are not specified in the Law and are expected to be announced later.

Country-by-Country Reporting (CbCR)

The Law does not refer to UAE CbCR requirements. However, it is expected that UAE CbCR requirements will remain applicable in accordance with Decision of the Council Resolution No. 44 of 2020: regulating the reports submitted by multinational companies (pdf).

Advance pricing agreements (APAs)

The Law states that UAE businesses may be able to apply for APAs. Additional guidance is expected from the FTA in this respect.

TP considerations for free zones

The Law introduces the concept of “Qualifying Free Zone Persons” (QFZP), which is broadly defined as a company or branch registered in a free zone that:

  • Maintains adequate substance in the UAE

  • Derives qualifying income (to be specified through a Ministerial Decision)

  • Satisfies TP requirements

  • Meets any other conditions to be prescribed through a Ministerial Decision

A QFZP is eligible to benefit from a 0% CT rate on its qualifying income. However, the QFZP will be required to comply with the arm’s length principle and prepare and maintain appropriate TP documentation.

Consequences of noncompliance with TP requirements

UAE businesses failing to adhere to the TP requirements may face the risk of:

  • Potential TP adjustments by the FTA which, in turn, may lead to an increase in the tax base of the UAE business
  • Potential loss of 0% CT rate applicable to QFZP businesses
  • Potential penalties for noncompliance or partial/inaccurate compliance (details on applicable penalties are expected to be announced in due course)
General anti-abuse and transitional rules

The Corporate Tax Law includes general anti-abuse rules (GAAR) intended to disregard transactions or arrangements undertaken with the main purpose of obtaining a CT advantage. These rules apply from the date the Law is published in the Official Gazette.

As part of its transitional rules, the CT Law also indicates that the opening balance sheet for CT purposes will be the closing accounting balance sheet for the financial year immediately before the first tax year.

Therefore, related party and connected person transactions undertaken during the transitional period are expected to comply with the arm’s-length principle.


The above TP rules will have significant implications for UAE businesses. Businesses should therefore begin to evaluate potential implications on their operations, which may include the following aspects:

  • Applicability of the TP rules such as identification of transactions that the business is carrying out with any related parties and/or connected persons
  • Impact on existing operating models and pricing of relevant transactions to see if any changes are required to align them with the arm’s-length standard
  • Impact on free zone structures and applicability of the conditions that must be satisfied to be eligible for the 0% CT rate
  • Efficient management of the additional compliance requirements introduced by these rules
  • Alignment of existing TP policies and documentation with the newly introduced TP rules
  • Impact on historical positions adopted with respect to Economic Substance Regulations

It is also important for UAE businesses to closely follow any other developments or guidance in this regard in the coming months.


For additional information with respect to this Alert, please contact the following:

EY Consulting LLC, Dubai
  • Guy Taylor, MENA Transfer Pricing Leader
  • Adil Rao, International Tax and Transaction Services
  • Chris Lord, MENA Tax Markets Leader
  • Rajan Parmar, UAE Tax Market Segment Leader
  • Jorge Novas, International Tax and Transaction Services
  • Senaka Senanayake, International Tax and Transaction Services
Ernst & Young LLP (United States), Middle East Tax Desk, New York
  • Asmaa Ali

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.