A common misconception is that transfer pricing applies only to cross-border transactions. Article 34 of the UAE Corporate Tax Law applies to transactions between Related Parties and Connected Persons even when both parties are located in the UAE. The FTA Transfer Pricing Guide (CTGTP1) confirms that the rules cover both cross-border and domestic controlled transactions, including dealings between mainland and Free Zone entities.
This matters because UAE businesses may be subject to different Corporate Tax treatments — the 9% standard rate, 0% on Qualifying Income for Qualifying Free Zone Persons, Small Business Relief, or exemptions. Incorrect pricing between related entities can shift profits and change each entity's taxable income.
What is the legal basis for domestic transfer pricing?
Article 34 of Federal Decree-Law No. 47 of 2022 requires the results of a transaction or arrangement between Related Parties to be consistent with what independent parties would have agreed in comparable circumstances. Article 35 defines Related Parties. Article 36 defines Connected Persons. None of those provisions is limited to a foreign counterparty.
The FTA Corporate Tax FAQs confirm that the analysis is not limited to cross-border counterparties. For who is in scope, start with who is covered and which transactions are included.
Why do domestic dealings still create tax risk?
Where both entities pay the same 9% rate on the same tax base, an arm's length mispricing may appear to "wash" at group level. That is not a safe assumption. The FTA tests each Taxable Person. Pricing that moves profit into a Qualifying Free Zone Person, a Small Business Relief claimant, an exempt person, or an entity with unused losses can change the group's overall UAE tax.
Typical pressure points include:
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Mainland to Free Zone sales, services, royalties or management fees.
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Free Zone to mainland distribution or procurement.
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Owner, director and officer payments inside a UAE group, tested under Article 36.
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Intercompany financing between UAE resident entities.
A mainland company paying above-market prices to a related Free Zone company, so that profit sits in the lower-taxed entity, is the classic non-compliant pattern. A UAE parent charging its subsidiary a management fee supported by benchmarking and documentation is the compliant counterpart.
Does exclusion from the Local File mean transfer pricing does not apply?
No. Ministerial Decision No. 97 of 2023 provides that certain transactions between Resident Persons are generally excluded from the Local File, unless they involve an Exempt Person, a Small Business Relief claimant, or a person subject to a different Corporate Tax rate.
Those transactions must still comply with the arm's length principle under Article 34. The Local File carve-out is a limited documentation relief, not an exemption from transfer pricing. Maintain evidence supporting the pricing even where the transaction qualifies for that relief. What a Local File must contain when it is required is covered in the UAE Local File preparation guide.
Does a UAE-only group need a Master File or Local File?
Under Ministerial Decision No. 97 of 2023, a Master File and Local File must be maintained where the Taxable Person is a Constituent Entity of an MNE Group with consolidated revenue of AED 3.15 billion or more, or where the Taxable Person's own revenue equals or exceeds AED 200 million in the relevant Tax Period.
A UAE-only group is therefore not automatically exempt from documentation. In practice, the Master File is designed to describe a group's global operations, so a wholly UAE-resident group with no foreign Constituent Entities should confirm how the FTA expects that file to be completed. The Local File can still apply at entity level if the AED 200 million revenue threshold is met.
Transfer Pricing Disclosure Form thresholds apply separately. See what businesses need to report and the Disclosure Form step-by-step guide.
What mistakes do UAE groups make with domestic transactions?
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Assuming that transactions between UAE entities are outside the scope of transfer pricing.
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Not applying arm's length pricing to transactions between mainland entities and Qualifying Free Zone Persons.
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Assuming that exclusion from the Local File also means exemption from the arm's length requirement.
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Relying on accounting related-party notes without applying the Article 35 and Article 36 definitions.
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Leaving Connected Person benefits — including non-cash benefits — off the inventory because both parties are in the UAE.
What should be checked before the Corporate Tax return is filed?
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Identify all Related Party and Connected Person transactions, including domestic transactions.
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Confirm the Corporate Tax status of each counterparty (standard rate, Free Zone, Small Business Relief, or exempt).
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Ensure that each transaction follows the arm's length principle.
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Maintain evidence supporting the pricing, even where the transaction qualifies for Local File documentation relief.
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Determine whether the Transfer Pricing Disclosure Form and Local File thresholds have been met.
Build the inventory from the general ledger, intercompany confirmations, contracts and tax-return disclosures — not from the tax result the group would prefer. A transfer pricing policy is only as strong as the domestic transactions it actually covers.
What happens if the FTA finds a domestic transaction is not at arm's length?
The FTA may adjust the taxable income of the parties to reflect an arm's length result. That can increase Corporate Tax liability and may also result in penalties where applicable. Administrative penalties for late or incomplete disclosure, and for failing to produce documentation within 30 days, sit on top of any income adjustment.
Frequently asked questions
Do transfer pricing rules apply when both companies are in the UAE?
Yes. If the companies are Related Parties or Connected Persons, their transactions must comply with the arm's length principle, even if both are UAE residents.
Are all domestic transactions included in the Local File?
No. Certain transactions between Resident Persons subject to the same Corporate Tax treatment may qualify for a documentation carve-out. The arm's length principle continues to apply.
Does a UAE-only group need a Master File?
A UAE-only group is not automatically exempt. The Master File is designed for groups with global operations, so a wholly UAE-resident group should confirm the FTA's expected treatment. A Local File and Disclosure Form can still apply if the relevant revenue or reporting thresholds are met.
What if a mainland company transacts with a related Qualifying Free Zone Person?
Those dealings are in scope. Different Corporate Tax treatments are exactly why domestic pricing can shift the group's overall UAE tax, and why the FTA expects arm's length support.
If a domestic transaction is below the disclosure threshold, is it exempt?
No. The AED 40 million Related Party and AED 500,000 Connected Person figures are disclosure thresholds, not exemptions from Article 34.
Primary sources and further reading
How SBC Tax Consulting can help
SBC's transfer pricing team tests mainland, Free Zone and other domestic related-party dealings against Article 34, including QFZP and Small Business Relief fact patterns, and documents the pricing even where a Local File carve-out applies. Corporate tax specialists align the same facts with each entity's return. Contact SBC to review domestic transactions before the next filing.
This publication is for general information only and does not constitute professional advice. Please consult your SBC advisor before acting on any matter covered here.