On this page
- The Short Answer for SME Owners
- The Arm's Length Principle in Plain Words
- Who Counts as a Related Party (Article 35)
- Who Counts as a Connected Person (Article 36)
- The Market Value Rule and Its Exceptions
- Filing the Transfer Pricing Disclosure Form
- Disclosure Thresholds and What You Report
- Master File and Local File: Who Needs Them
- Common SME Situations
- Small Business Relief and Qualifying Free Zone Persons
- Advance Pricing Agreements Are Now Available
- What to Keep on File
- Common Mistakes
- Frequently Asked Questions
The Short Answer for SME Owners
Transfer pricing is not only for multinationals. Under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), dealings with related parties must be priced as if between strangers, and payments to owners, directors, officers or their relatives are deductible only up to market value.
That covers your own salary, loans between your companies, rent paid to a relative and a free zone company selling to its mainland sister. Size does not switch the rules off. It changes the paperwork. For most SMEs the job is to set prices you can justify, keep the evidence, and file the transfer pricing disclosure with the Corporate Tax return if you cross the thresholds.
The Arm's Length Principle in Plain Words
Article 34 sets one test: the terms must match what two independent businesses would agree in similar circumstances. If they do not, the Federal Tax Authority (FTA) can adjust your taxable income. The law lists five methods: comparable uncontrolled price, resale price, cost plus, transactional net margin and profit split.
For a small business, the best evidence is often what you charge or pay unrelated parties for the same thing. The FTA's Transfer Pricing Guide adds two points owners miss. The lack of a written agreement does not mean there is no transaction, and anything provided free or below market value is still tested. The rule also covers dealings inside the UAE, including free zone to mainland.
Who Counts as a Related Party (Article 35)
| Relatives | Individuals related up to the fourth degree of kinship or affiliation, which reaches first cousins and includes relatives by marriage |
|---|---|
| You and a company | You own 50% or more, alone or with your relatives, or you control it |
| Two companies | One owns 50% or more of the other or controls it, or the same person and their related parties own 50% or more of both or control both. Family sister companies usually fall here |
| Control | 50% or more of the votes, board seats or profits, or the ability to determine or significantly influence how the business is run |
| Other links | A business and its branch, partners in the same unincorporated partnership, and parties to a trust or foundation |
Who Counts as a Connected Person (Article 36)
Connected persons are the people behind a company: any individual who owns an interest in it, directly or indirectly, or controls it; any director or officer; and any related party of those people. There is no 50% test here, so a 10% individual shareholder is connected, and so is a director's brother.
Public Clarification CTP010 (April 2026) says a director sits on the board or an equivalent body, and a job title alone is not enough. An officer has authority to plan, direct and control the business or bind it to agreements. A general manager usually qualifies; someone who only carries out others' decisions usually does not.
A person who is both related and connected, such as a 60% owner, is treated as a related party.
The Market Value Rule and Its Exceptions
A payment or benefit to a connected person is deductible only to the extent it matches market value and is incurred wholly and exclusively for the business (Article 36(1)). The excess is added back to taxable income. Article 36(6) disapplies this for listed companies, businesses under the regulatory oversight of a competent UAE authority, and anyone named in a Cabinet decision. If the person is also a related party, Article 34 still applies.
Filing the Transfer Pricing Disclosure Form
Article 55(1) lets the FTA require a disclosure of related party and connected person transactions with the Corporate Tax return, due nine months after the tax period ends. The thresholds come from the FTA's Corporate Tax Returns guide of November 2024, not the law.
Disclosure Thresholds and What You Report
| Related party trigger | Related party transactions in the period exceed AED 40 million, at market value or financial statement value |
|---|---|
| Category trigger | Once over AED 40 million, report each category above AED 4 million (goods, services, intellectual property, interest, assets, liabilities, other) |
| Connected person trigger | Payments or benefits to one connected person, counted with that person's related parties, exceed AED 500,000 |
| Dividends | Excluded from the thresholds and not reported |
| What you enter | Transaction value, arm's length or market value, method and any adjustment, with no netting |
| Downward adjustments | Under Public Clarification CTP011 (15 July 2026), self-assessed without prior FTA approval, but every adjusted transaction must be disclosed whatever its value |
Important
Loan Balances Count Towards the Thresholds
Assets and liabilities are reporting categories, so cash moved between your companies counts, not just the interest. A company that keeps moving money to and from its sister companies can pass AED 40 million while trading very little.
Master File and Local File: Who Needs Them
Ministerial Decision No. 97 of 2023 requires both files only if your revenue is AED 200 million or more, or you belong to a multinational group with consolidated revenue of AED 3.15 billion or more. Per the FTA's guide, a UAE group with no business outside the country needs no Master File, though a member over AED 200 million still needs a Local File.
That file must cover dealings with non-residents, exempt persons, Small Business Relief companies and UAE companies taxed at a different rate, such as a Qualifying Free Zone Person, but not other UAE companies taxed at the same rate. Files are due within 30 days of an FTA request (Article 55(3)).
Any business asked for evidence supporting its related party pricing also has 30 days (Article 55(4)). Corporate Tax records must be kept for seven years (Article 56).
Common SME Situations
- 1
Paying yourself a salary
Deductible to the extent it matches what the company would pay an unrelated person for the same role. Keep a job description and market evidence such as salary surveys. At 50% ownership or more you are also a related party, and CTP010 applies the related party rules.
- 2
Family members on the payroll
Your children, parents and siblings, and your spouse's parents and siblings, are connected persons of your company. Paying them is fine if they do real work at a fair rate. A salary with no duties behind it is unlikely to pass the wholly and exclusively test.
- 3
Interest-free loans between sister companies
The FTA's guide follows the OECD approach, pricing a loan by what comparable borrowers pay independent lenders, so the FTA can add interest to the lender's income. Invoices left unpaid well past normal terms can be treated as a loan. If the lender includes arm's length interest in its own return, the borrower may self-assess a matching deduction under CTP011, with benchmarking and evidence of the lender's adjustment.
- 4
Lending to your company personally
The FTA's July 2026 summary of private clarifications indicates interest paid to an individual can be deductible on arm's length terms, subject to the interest limitation rules. Private clarifications bind only the applicant.
- 5
Shared office and staff
Recharge on a basis you can explain, such as floor area or time spent, and keep the workings. For routine low value-adding support services, the FTA's guide accepts cost plus 5% without a detailed benchmarking study.
- 6
Management fees
Deductible only if your company receives a service it would pay an independent provider for, or would otherwise do itself (the benefit test). Keep reports, minutes and time records.
- 7
Free zone company and mainland sister
Overpricing what a free zone company taxed at 0% charges a mainland sister taxed at 9% shifts profit to the lower rate, the pattern these rules exist to catch. Mainland income is qualifying for a Qualifying Free Zone Person only in limited cases.
Small Business Relief and Qualifying Free Zone Persons
Small Business Relief disapplies Article 55, so no disclosure form and no Master File or Local File (Article 21(2)). It does not disapply Article 34: the FTA's guide says related party dealings must still be at arm's length. Ministerial Decision No. 131 of 2026 extended the relief to tax periods ending on or before 31 December 2029, with the AED 3 million limit unchanged.
Splitting one business across companies to stay under that limit can be treated as tax avoidance under Article 50 (Ministerial Decision No. 73 of 2023, Article 6). Qualifying Free Zone Persons cannot elect the relief, and Article 18(1)(d) makes compliance with Articles 34 and 55 a condition of the 0% rate.
Failing it costs the status for that tax period and the next four. The FTA's July 2026 summary of private clarifications indicates that non-arm's length prices in the accounts do not automatically cost the status if corrected through adjustments in the return.
Advance Pricing Agreements Are Now Available
An Advance Pricing Agreement fixes with the FTA how future related party transactions will be priced. Article 59 always allowed them, and the FTA opened domestic unilateral applications in December 2025 under its APA guide, with cross-border agreements announced to follow later. The indicative threshold is AED 100 million of covered transactions per tax period, the fee is AED 30,000, and an agreement covers three to five future periods.
Few SMEs qualify, but the guide names free zone and mainland transactions as suitable cases, which shows where the FTA is looking.
What to Keep on File
- A list of related parties and connected persons, with ownership percentages and family links
- A written agreement for each intercompany loan, recharge, service or lease, signed before it starts
- A note on how each price was set and the market evidence behind it
- Salary evidence for owners, directors and relatives
- Workings for shared cost allocations
- A reconciliation between your ledgers and the disclosure form
Common Mistakes
- Assuming transfer pricing only matters for cross-border groups
- Forgetting relatives, minority owners and directors
- Leaving interest-free loan balances out of the threshold count
- Booking recharges or management fees at year end with no agreement
- Believing Small Business Relief removes the arm's length rule
Frequently Asked Questions
- Does transfer pricing apply if all my companies are in the UAE?
- Yes. Article 34 covers domestic transactions, including free zone to mainland. Documentation can be lighter, since a Local File need not cover UAE companies taxed at the same rate.
- My revenue is below AED 3 million. What do I need to do?
- If you qualify for and elect Small Business Relief, you skip the disclosure form and the files, but related party prices should still be at arm's length, with evidence to show it.
- Can I pay my son or daughter a salary from my company?
- Yes, for real work. As your relative they are a connected person, so the salary is deductible up to market value; any excess is added back.
- Do I have to charge interest when one of my companies lends to another?
- The arm's length principle points that way. In a Tax Group, transactions between the parent and its subsidiaries are eliminated (Article 42), but a group needs a resident parent company holding at least 95% of each member, and Qualifying Free Zone Persons cannot join.
- How quickly must I produce documents if the FTA asks?
- Within 30 days unless the FTA allows longer, for the Master File and Local File and for any other evidence supporting your pricing.
Important
Position as of 1 November 2026
This article reflects the Corporate Tax Law, Ministerial Decisions and FTA guidance available on 1 November 2026. The FTA is still adding to its transfer pricing guidance and thresholds can change, so check the FTA website before you file. It is general information, not advice on your own group structure.
Not Sure How Your Companies Should Price Their Dealings?
Marifah Tax Advisory can map your related parties and connected persons, review salaries, loans and recharges between your companies, and help you prepare the disclosure and supporting file for your Corporate Tax return. Book a free consultation to talk it through.