Transfer pricing in the UAE does not start at AED 200 million. That figure is only the point at which a business must keep a Master File and a Local File. The obligation to price every transaction with a related party at arm’s length applies from the first dirham, under Article 34(1) of the Corporate Tax Law, which the Federal Tax Authority restates as “all transactions and arrangements between Related Parties must meet the arm’s length standard”. Most owner-managed UAE companies are inside the rules and outside the documentation thresholds at the same time, and that combination is what catches them.

This guide is written for the business that is nowhere near AED 200 million: a mainland or free zone company owned by one family, paying its owner a salary, renting premises from a relative, lending money to a sister company, or buying services from a group entity abroad. It sets out which of these are controlled transactions, which have to be disclosed in the tax return and at what value, what a small business actually has to keep on file, and one point where two official FTA documents currently say opposite things.

What Transfer Pricing Actually Requires of a Small UAE Business

The arm’s length principle applies to every taxable person with related party or connected person transactions, with no revenue threshold. The AED 200 million and AED 3.15 billion figures govern documentation, not the pricing obligation. A company with AED 4 million of revenue must still price intra-group transactions as independent parties would, and must be able to show the FTA how it did so.

The FTA is explicit that the rules cover domestic transactions, not just cross-border ones. Its guide states that all cross-border controlled transactions “as well as domestic Controlled Transactions (i.e. transactions between Related Parties or Connected Persons located in the UAE, including transactions undertaken between Free Zone Persons) must follow the Arm’s Length Principle.” A Dubai company paying a Sharjah company in the same family group is inside the regime.

What changes with size is the paperwork. A small company does not prepare a Master File or a Local File. It answers the transfer pricing questions in its corporate tax return, completes the schedules if it crosses the disclosure thresholds, and keeps enough supporting material to defend its prices if the FTA asks.

Who counts as a related party in the UAE?

Related party status is established by kinship, ownership or control. For natural persons the test reaches the fourth degree of kinship and affiliation, which the FTA spells out as including grandparents, siblings, uncles, aunts, nieces, nephews and first cousins, together with the same relatives of a spouse. For ownership, the test is a direct or indirect interest of 50% or more, computed by multiplying through the chain. For control, the test is 50% or more of voting rights, 50% or more of the board, entitlement to 50% or more of the profits, or the ability to “determine, or exercise significant influence over, the conduct of the Business and affairs of another Person.”

That last limb has no percentage. The FTA’s own worked example describes a 49% foreign shareholder that runs day-to-day operations and sets market strategy, and concludes that this shareholder has control despite the minority stake. A second example treats a lender whose loan makes up 50% of the borrower’s capital, and who then starts directing pricing and strategy, as a related party of a company it does not own at all.

Connected Persons: The Rule That Catches Owner-Managed Companies

A connected person is an individual who owns or controls the company, a director or officer of the company, a partner in an unincorporated partnership, or a related party of any of those. Payments and benefits to a connected person are deductible only to the extent they correspond to the arm’s length price of the service or benefit provided, and only if incurred wholly and exclusively for the business.

This is Article 36, and it is a different rule from the related party rule in Article 34. It does not target group structures. It targets the money that leaves the company in the direction of the people who own or run it. In a typical UAE SME that means the owner’s salary, a director’s fee, rent paid to a shareholder for a property they own personally, interest on a shareholder loan, a car or housing provided to the owner, and payments to the owner’s spouse or children.

Two conditions have to be met, not one. The payment must be at market value for what was actually provided, and it must be wholly and exclusively for the business. A salary paid to a shareholder who performs no function fails the second test regardless of its size.

The FTA guide records a carve-out at Article 36(6): the arm’s length restriction on deductions to connected persons does not apply to a taxable person whose shares are traded on a recognised stock exchange, a taxable person subject to the regulatory oversight of a competent authority in the UAE, or any other person the Cabinet determines. Almost no SME falls into those categories.

Does the owner’s salary count as a connected person transaction?

Yes. A shareholder who draws a salary is receiving a payment from the company as a connected person, and the deduction is capped at the market value of the work performed. There is no safe-harbour figure. The practical defence is a written employment or service agreement, a job description that matches what the person does, and a comparison to what the company would pay an unrelated person for the same role at the same seniority in the same market.

The Three Disclosure Thresholds in the Tax Return

The FTA’s Corporate Tax Returns Guide sets three separate triggers: an AED 40 million aggregate for related party transactions, an AED 4 million per-category threshold once the first is crossed, and an AED 500,000 threshold per connected person. Dividends between related parties are excluded from the schedule and from the threshold calculations.

These are not one test with three parts. They gate different schedules and they behave differently, which is where filings go wrong.

Threshold What it measures What it triggers
AED 40 million Aggregate value of all transactions with all related parties, as recorded in the financial statements or at market value The Related Party Transactions Schedule
AED 4 million Aggregate value per transaction category, across all related parties, once the AED 40 million gate is passed Which categories must actually be listed in that schedule
AED 500,000 Aggregate value of transactions with connected persons, including their related parties The Connected Persons Schedule, completed for each connected person above the figure
AED 200 million / AED 3.15 billion Own revenue in the tax period, or consolidated group revenue of a multinational group Master File and Local File under Ministerial Decision 97 of 2023

The AED 500,000 connected persons threshold is the one that matters to a small company, and it is by far the lowest. An owner drawing AED 45,000 a month crosses it before the year is out. The FTA’s wording is that the schedule “should be completed for each Connected Person where the aggregate payment or benefit exceeds AED 500,000 per Connected Person (together with its Related Parties)”, so a shareholder and their spouse are measured together, not separately.

What actually happens when you file

The return asks the questions in sequence. You confirm whether there were transactions with related parties, then whether the aggregate exceeded AED 40 million, then you enter upward adjustments and downward adjustments as separate figures. The FTA states that upward adjustments “should not be netted off against” downward adjustments, so a company that has one of each reports both gross. The connected person questions follow the same pattern, ending in a manual field for adjustments in respect of payments or benefits to connected persons that were not at market value.

The Downward Adjustment Contradiction You Need to Know About

Two official FTA documents currently disagree. The Corporate Tax Returns Guide of November 2024 states that a downward adjustment “will be allowed only upon a successful application to the FTA”. Public Clarification CTP011, issued in July 2026, states that “A Taxable Person is not required to obtain prior approval from the FTA to make transfer pricing adjustments in the Tax Return.”

This is not a minor drafting difference. A downward adjustment reduces taxable income, and under the returns guide a business would have to obtain FTA approval before entering anything in that field, entering nil if approval was refused. Under the public clarification the system is self-assessment: the taxpayer decides, files, and lives with the possibility of a tax audit afterwards.

CTP011 is the later instrument and it addresses the question directly, so it is the position to follow. It is worth knowing that the returns guide has not been reissued to match, and a great deal of advisory commentary still repeats the pre-approval line. If your accountant tells you a downward adjustment needs FTA sign-off first, the July 2026 clarification is the document to put in front of them.

CTP011 also removes a threshold that most people assume applies. Where a downward adjustment is made, the taxable person “must disclose all transactions and arrangements with its Related Parties for which a downward adjustment is made in the Tax Return, irrespective of the value or nature of the transactions and arrangements.” The AED 40 million gate does not protect you here. A small company making a single downward adjustment discloses it.

The clarification lists what to hold on file when you do: the rationale showing why the original pricing did not reflect arm’s length and how the revised outcome does, an arm’s length analysis including a benchmarking study, a reconciliation between the financial statement values and the arm’s length values in the return, and symmetrical corresponding adjustments by the related party on the other side. That last one is the hardest in practice, because it requires the counterparty to move in the opposite direction.

One limit to note: CTP011 says it applies solely to adjustments required under Article 34(1) and does not extend to corresponding adjustments under Articles 34(10) and 34(11).

When a Small Business Does Need a Local File

Ministerial Decision 97 of 2023 sets the Master File and Local File requirement at either AED 3.15 billion of consolidated group revenue for a constituent company of a multinational group, or AED 200 million of the taxable person’s own revenue in the tax period. Below both, neither file is required.

There is a UAE-specific relaxation on top. The FTA guide states that a taxable person that is part of a UAE-headquartered group which is not a multinational group, meaning a group with no business establishments outside the UAE, is not required to maintain a Master File. A purely domestic group crossing AED 200 million prepares a Local File only.

The Local File content rules are worth reading even below the threshold, because they show what the FTA considers material. Ministerial Decision 97 of 2023 requires a Local File to document controlled transactions with a non-resident person, with an exempt person, with a resident person that benefits from small business relief, and with a resident person subject to a different corporate tax rate, such as a qualifying free zone person.

The small business relief item is the one that surprises groups. If one company in a family group elects small business relief and another company in the same group is above the documentation threshold, the transactions between them become a documented category for the larger company. Relief for one entity creates work for the other. The same logic applies where one entity is a qualifying free zone person on the 0% rate and the other is on 9%, because the rate difference is exactly what makes the pricing worth examining.

Three categories are excluded from the Local File: transactions with natural persons acting as if independent of each other, transactions with a juridical person that is a related party or connected person solely by virtue of being a partner in an unincorporated partnership and acting independently, and transactions with a permanent establishment of a non-resident subject to the same corporate tax rate. The FTA adds the obvious caveat that these still have to be at arm’s length and still have to be defensible on request.

What to Keep on File If You Are Below the Thresholds

The FTA expects documentation to be contemporaneous, meaning maintained at the time of the transaction or by the time the return for that period is filed. Where a Master File or Local File is required, it may be requested and must be provided within 30 days, or a longer period if the FTA agrees.

Below the thresholds there is no prescribed format, which is not the same as nothing to do. A proportionate file for an SME looks like this:

  • A list of related parties and connected persons, applied honestly against the kinship, ownership and control tests rather than the org chart.
  • A signed agreement for each recurring intra-group or shareholder arrangement: employment or service contract, lease, loan agreement, service agreement.
  • A short note per arrangement explaining the basis for the price, with whatever market reference you can obtain. The FTA asks that documentation include “reliable publicly available market references” to the extent possible.
  • Evidence the service was actually rendered, which is what the FTA’s intra-group services section is built around.
  • A reconciliation from the financial statements to any figure adjusted in the return.

The FTA also expects these policies to be “prepared, regularly reviewed and reassessed at least annually to reflect changes in the Taxable Person’s business or structure.” A file written once and never revisited is not contemporaneous documentation.

This sits alongside the general record-keeping obligations that apply to every taxable person, which are covered in our guide to bookkeeping and audit requirements under UAE corporate tax. Transfer pricing material is part of the same evidence base, not a separate exercise.

The Five Methods, and Which One a Small Business Realistically Uses

The FTA recognises the five OECD methods: the comparable uncontrolled price method, the resale price method, the cost plus method, the transactional net margin method and the profit split method. There is no hierarchy that forces a particular choice. The requirement is to select the most appropriate method for the transaction and to document why.

For a small company the honest answer is usually one of two. Where the company also sells the same thing to unrelated customers, an internal comparable uncontrolled price is available and is the cleanest evidence there is: you charged a third party X, so you charge the related party X. Where no internal comparable exists, a cost plus or transactional net margin approach applied to a routine service is normally the defensible route, supported by whatever external data can be obtained.

What does not work is a round number with no reasoning behind it. The FTA states the burden of proof sits with the taxable person, and a management fee set at a convenient figure with no functional analysis behind it is the classic audit target.

How This Interacts With the Rest of Your Corporate Tax Position

Transfer pricing is not a standalone filing. It changes taxable income, which flows into the return covered in our guide to corporate tax return filing deadlines and penalties, and the transfer pricing disclosure form is submitted alongside the return within nine months from the end of the relevant tax period.

Two interactions catch small groups in particular. First, a business that has elected small business relief still has to consider its pricing, because the relief affects its own tax position and not its counterparty’s documentation. Second, a free zone company relying on qualifying income has an additional reason to get pricing right, since a non-arm’s length charge between a 0% entity and a 9% entity is precisely the pattern the regime is designed to test. If you are still working out which regime applies to you, start with corporate tax for freelancers and small businesses and corporate tax registration on EmaraTax.

FAQ

Does transfer pricing apply to small businesses in the UAE?

Yes. The arm’s length obligation in Article 34(1) of the Corporate Tax Law applies to all transactions and arrangements between related parties with no revenue threshold. What size changes is documentation: Master File and Local File obligations begin at AED 200 million of own revenue or AED 3.15 billion of consolidated multinational group revenue under Ministerial Decision 97 of 2023.

What is the transfer pricing threshold in the UAE?

There are several, and they do different things. AED 40 million of aggregate related party transactions triggers the Related Party Transactions Schedule, after which categories above AED 4 million must be listed. AED 500,000 per connected person triggers the Connected Persons Schedule. AED 200 million of own revenue or AED 3.15 billion of group revenue triggers Master File and Local File.

Is my salary from my own company a transfer pricing issue?

It is a connected person issue under Article 36. A payment to an individual who owns or controls the company is deductible only to the extent it corresponds to the arm’s length price of the service provided and is incurred wholly and exclusively for the business. If the aggregate value of payments and benefits to that person, together with their related parties, exceeds AED 500,000 in the tax period, the Connected Persons Schedule must be completed for them.

Do domestic UAE transactions need transfer pricing documentation?

The arm’s length principle applies to domestic controlled transactions, including transactions between free zone persons, exactly as it does to cross-border ones. Documentation obligations depend on the thresholds rather than on whether the counterparty is in the UAE. A UAE-headquartered group with no establishments outside the country is exempt from the Master File but not from the Local File once it crosses AED 200 million.

Are family members related parties for UAE corporate tax?

Natural persons are related parties up to the fourth degree of kinship and affiliation. That reaches parents, children, grandparents, grandchildren, siblings, great-grandparents, uncles, aunts, nieces, nephews and first cousins, and the equivalent relatives of a spouse. Family businesses in the UAE are therefore inside the related party rules by default, not by exception.

Do I need FTA approval before making a downward transfer pricing adjustment?

Public Clarification CTP011 of July 2026 states that a taxable person is not required to obtain prior approval from the FTA to make transfer pricing adjustments in the tax return, and must self-assess the requirement. The earlier Corporate Tax Returns Guide of November 2024 says a downward adjustment is allowed only on a successful application to the FTA. The clarification is the later instrument and addresses the point directly, but the guide has not been reissued, so expect to see the older position quoted.

What has to be disclosed when you make a downward adjustment?

All transactions and arrangements with related parties for which a downward adjustment is made must be disclosed in the return irrespective of value or nature, so the AED 40 million threshold does not apply. You should also hold the rationale for the adjustment, an arm’s length analysis including a benchmarking study, a reconciliation between financial statement values and the arm’s length values, and evidence of symmetrical corresponding adjustments by the related party.

Are dividends included in the AED 40 million threshold?

No. The FTA states that dividends declared between related parties do not need to be disclosed in the Related Party Transactions Schedule and should not be taken into account in determining the AED 40 million or AED 4 million thresholds.

What counts as control if I own less than 50%?

Control includes the ability to determine or exercise significant influence over the conduct of another person’s business and affairs, with no percentage attached. The FTA’s own example treats a 49% shareholder that runs day-to-day operations, develops strategy and makes key market decisions as having control. A lender that starts directing a borrower’s pricing and strategy can also become a related party without owning shares.

How long do I have to produce transfer pricing documentation if the FTA asks?

A Master File and Local File may be requested and must be provided within 30 days, or a longer period if the FTA agrees. Documentation is expected to be contemporaneous, prepared at the time of the transaction or by the time the return for that period is submitted, so a file assembled after a request arrives is unlikely to meet the standard.

Official Sources

Information is current as of August 2026. Limitations are stated rather than smoothed over. The AED 40 million, AED 4 million and AED 500,000 disclosure thresholds are taken from the FTA’s Tax Returns Guide of November 2024 and should be re-checked against the current return form, because the FTA has revised return schedules since. The conflict between that guide and Public Clarification CTP011 on prior approval for downward adjustments is real and is reported here rather than resolved; follow the clarification as the later instrument and take advice if the amount is material. Articles 34, 35 and 36 of the Corporate Tax Law are quoted here as restated in the FTA’s own Transfer Pricing Guide, because the Ministry of Finance and legislation portal copies of the decree-law were unreachable during this review. No penalty amount for a transfer pricing failure is quoted, because penalties are set by separate Cabinet decisions and depend on the nature of the violation. This article explains published rules and is not tax or legal advice. Confirm your position with the Federal Tax Authority or a registered tax agent before filing.