As the UAE’s Corporate Tax (CT) deadline of 30th September 2025 is fast approaching, businesses must remember that compliance goes beyond filing the tax return. Transfer Pricing (TP) obligations are an integral part of the process.
When to File Corporate Tax in the UAE?
The filing deadline depends on your company’s financial year-end. You have 9 months from the end of the financial year to file your CT return and pay any tax due.
Ex: Financial year 1 Jan 2024 – 31 Dec 2024 → CT return due 30 Sep 2025
What is Transfer Pricing?
Transfer Pricing refers to how transactions are priced between Related Parties and Connected Persons.
- Related Parties are entities under common ownership or control, such as subsidiaries or other group affiliates.
- Connected Persons include individuals or entities with significant influence over the business, such as shareholders, directors, partners, or those related to Key Managerial Personnel (KMP).
The transactions that include goods, services, loans, royalties, or management fees, all payments made to connected persons must be carried out in line with the Arm’s Length Principle, meaning they should be priced as if the parties were independent and negotiating in the open market.
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What is Arm’s Length Price?
The Arm’s Length Principle is the foundation of transfer pricing rules. It requires that the conditions (price, margin, interest, or fee) in a transaction between related/connected parties are the same as those that would have been agreed between two independent businesses in an open market.
This principle is important as it ensures fair and transparent taxation, prevents companies from shifting profits to low-tax jurisdictions, protects businesses from FTA disputes, audits, and reassessments and aligns UAE businesses with OECD and international tax standards.
For payments to connected persons to be deductible, they must pass two crucial tests:
- The Arm’s Length Test: The payment must be paid as if it were a transaction between independent entities.
- The Wholly and Exclusively Test: The payment must be incurred entirely and solely for business purposes.
Why is a Benchmarking Report Required?
A Benchmarking Report is the backbone of Transfer Pricing compliance. It is a structured analysis that compares the prices, margins, or interest rates applied in your company’s transactions with Connected Persons and Related Parties against those applied in similar transactions between independent parties in the open market.
The report typically involves:
- Identifying the controlled transactions (e.g., payments to shareholders, intercompany loans, management services, royalties, etc.).
- Selecting the appropriate Transfer Pricing method (e.g., Comparable Uncontrolled Price, Cost Plus, Resale Price, or Transactional Net Margin Method).
- Sourcing comparable data from independent third-party companies or databases.
- Analyzing and justifying that your company’s pricing falls within the “arm’s length range”.
This documentation is crucial because it:
- Proves compliance with the Arm’s Length Principle.
- Provides a defense in case of FTA audit or inquiry.
- Protects against tax adjustments, penalties, and denial of deductions.
- Demonstrates transparency and alignment with international OECD standards.
In short, a Benchmarking Report is not just paperwork it is your evidence that transactions with related or connected parties are priced fairly and can withstand regulatory scrutiny.
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KEY TAKEAWAY
UAE Transfer Pricing isn’t optional anymore. To defuse the compliance time bomb, businesses must:
- Prepare annual TP documentation & Benchmarking Reports
- Ensure all related/connected party transactions meet ALP
- Align expenses with genuine business purpose (to avoid disallowances under Article 28)
? Act now, before September 30, 2025, to safeguard your business from avoidable risks and penalties imposed by the UAE CT (Transfer Pricing) Law.
