Transfer pricing documentation in the full sense — a Master File and Local File — is only mandatory for UAE entities with revenue above AED 200 million, or groups with global consolidated revenue above AED 3.15 billion. But the underlying rule behind transfer pricing, the arm’s length principle, applies to every UAE business with related-party dealings, regardless of size. If your company pays a management fee to a sister company, rents property from a shareholder, or pays the owner a salary, the FTA expects you to be able to show that price reflects market value — even if you never touch a formal Local File.
“Transfer pricing” sounds like something that belongs on a multinational’s balance sheet, not a Dubai SME with three shareholders and a handful of related entities. That assumption causes more problems than almost any other Corporate Tax misconception we come across — because the rules that actually bite most owner-managed businesses aren’t the big documentation thresholds. They’re the basic requirement to price related-party transactions fairly, which applies from day one, at any revenue size.
Related Parties vs. Connected Persons: Two Different Tests
The UAE Corporate Tax Law splits this into two related but distinct categories, and mixing them up is one of the most common errors we see.
Related Parties (Articles 34–35) generally cover other entities connected through ownership, control, or family relationships — a sister company under common ownership, a parent-subsidiary structure, or a business owned by a relative within the fourth degree of kinship. Transactions between related parties must reflect the arm’s length principle: the price a genuinely independent party would have agreed to.
Connected Persons (Article 36) is a narrower, more personal category — owners, directors, officers, and their relatives. This is the article that catches owner salaries, director fees, and payments to shareholders directly. Under Article 36, a payment to a connected person is deductible only if it corresponds to the market value of the service or benefit provided, and is incurred wholly and exclusively for business purposes. Anything paid above market value isn’t just questionable — it’s simply not deductible.
The FTA sharpened this further with Public Clarification CTP010, issued in 2026, which clarified who actually counts as a “director” or “officer” for these purposes. The clarification confirmed that the definition isn’t limited to formal board titles — it can extend to general managers, authorised signatories, or anyone functionally exercising that kind of authority, even without the job title. That’s a meaningful widening for owner-managed businesses where a general manager or a family member with signing authority might not have realised they fall inside the connected-person net.
The Documentation Framework: Three Tiers, Three Thresholds
UAE transfer pricing compliance works on three separate levels, and most SMEs only ever encounter the first one.
| Requirement | Who it applies to | What’s needed |
|---|---|---|
| Arm’s length principle | Every taxable person with related-party or connected-person transactions | Basic supporting evidence: comparable pricing, intercompany agreements, a documented rationale |
| Transfer Pricing Disclosure Form | Related-party transactions exceeding AED 40 million in aggregate (with individual categories over AED 4 million disclosed separately); Connected Person payments exceeding AED 500,000 per person | Filed with the Corporate Tax Return, within 9 months of the tax period end |
| Master File & Local File | UAE entity revenue of AED 200 million or more, or part of an MNE group with global consolidated revenue of AED 3.15 billion or more | Full documentation, produced within 30 days of an FTA request, retained for 7 years |
Notice what’s missing from most SME conversations: the first row. It’s not optional, it has no revenue floor, and it’s the one that actually applies to the vast majority of UAE businesses.
This is where the confusion usually starts — a business checks the AED 200 million threshold, confirms it’s nowhere close, and concludes transfer pricing “doesn’t apply.” Advisors who specialise in this area consistently flag this as a flawed shortcut: the Disclosure Form thresholds determine what gets reported, not what needs to be compliant. A transaction well below AED 40 million still has to be priced at arm’s length — it just doesn’t need to be itemised on the form.
Where This Actually Shows Up for SMEs
In practice, the related-party and connected-person rules surface in a handful of very ordinary situations:
- Management fees charged between related companies under common ownership
- Rent paid to a shareholder or a shareholder-owned property company
- Owner or director salaries — a genuine risk area, since the FTA tests these against market value for the role actually performed, not against what the owner decides to pay themselves
- Interest-free or below-market loans from a parent company or shareholder
- Service agreements between sister companies (shared staff, shared office costs, intercompany recharges)
None of these require a Master File. All of them require you to be able to show, if asked, that the price was fair — and that’s a materially lower bar than full TP documentation, but it’s still a bar most businesses haven’t cleared.
What “Basic Documentation” Actually Looks Like
For a business below the AED 200 million and AED 40 million thresholds, a defensible file doesn’t need benchmarking studies or economic analysis. It needs to answer three questions clearly, in writing:
- What was the transaction, and who was on each side? — a short description, the relationship between the parties, and the date.
- How was the price set? — a comparable market rate, an independent valuation, or a documented rationale for why the figure is reasonable (e.g., comparable commercial rents in the same building for a shareholder lease).
- Is there a written agreement? — even a simple intercompany agreement or board resolution is far stronger evidence than an unexplained bank transfer.
Owner salaries deserve particular attention here. A salary that reflects genuine market value for the role — benchmarked against what an unrelated person doing the same job would earn — is deductible. A salary set purely by convenience, or used to move profit between related entities, is exactly the kind of connected-person payment Article 36 is designed to catch.
What Happens If You Get This Wrong
Two separate risks apply here, and they’re often conflated.
Disallowed deductions: if a related-party or connected-person payment can’t be shown to reflect market value, the FTA can disallow the excess — increasing taxable income and the resulting tax bill, potentially for more than one filed year if the pricing pattern repeats.
Record-keeping penalties: separately, failing to maintain the records required to support your Corporate Tax position carries its own fixed penalty — a first violation is penalised, with a higher penalty for a repeat violation within 24 months. This applies regardless of whether an adjustment is ultimately made to your taxable income; it’s a penalty for the absence of evidence, not just for a wrong number.
Both risks are compounding. A business that hasn’t documented anything is more exposed on both counts than one that has a simple written rationale on file, even if that rationale isn’t a formal benchmarking report.
A Practical Checklist for SME Owners
- List every related company and every connected person (owners, directors, officers, and their relatives) tied to the business
- For each recurring transaction with them — rent, management fees, salaries, loans — note how the price was determined
- Keep a copy of the underlying agreement, even a simple one
- Revisit owner and director compensation annually against a genuine market comparison
- Check whether aggregate related-party transactions are approaching the AED 40 million disclosure threshold, or connected-person payments the AED 500,000 threshold, well before filing
- Don’t assume “we’re too small” settles the question — it only settles whether a form is required, not whether the underlying pricing needs to hold up
Transfer pricing documentation in its full form — Master File, Local File, benchmarking studies — genuinely is a large-business concern. But the principle underneath it, that related-party and connected-person transactions must reflect market value, applies to every UAE taxable person from day one. For most SMEs, closing that gap isn’t about building an elaborate TP file. It’s about writing down, in a few sentences per transaction, how the price was set — before the FTA asks, not after.
At Gateway Accounting Services, we help owner-managed businesses map their related-party and connected-person transactions, put basic supporting documentation in place, and determine whether the larger disclosure or Master File thresholds apply. If you’re not sure where your business stands, get in touch with our Corporate Tax team for a review.