{"id":4062,"date":"2026-08-28T07:52:45","date_gmt":"2026-08-28T07:52:45","guid":{"rendered":"https:\/\/gatewayaccounting.ae\/?p=4062"},"modified":"2026-08-28T10:31:15","modified_gmt":"2026-08-28T10:31:15","slug":"related-party-transactions-transfer-pricing-uae-smes","status":"publish","type":"post","link":"https:\/\/gatewayaccounting.ae\/related-party-transactions-transfer-pricing-uae-smes\/","title":{"rendered":"Related-Party Transactions and Transfer Pricing in the UAE: What SMEs Need to Document"},"content":{"rendered":"\t\t
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Transfer pricing documentation in the full sense \u2014 a Master File and Local File \u2014 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<\/em> 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 \u2014 even if you never touch a formal Local File.<\/p>

“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 \u2014 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.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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Related Parties vs. Connected Persons: Two Different Tests<\/h3>\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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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.<\/p>

Related Parties (Articles 34\u201335)<\/strong> generally cover other entities connected through ownership, control, or family relationships \u2014 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.<\/p>

Connected Persons (Article 36)<\/strong> is a narrower, more personal category \u2014 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<\/strong> of the service or benefit provided, and is incurred wholly and exclusively for business purposes. Anything paid above market value isn’t just questionable \u2014 it’s simply not deductible.<\/p>

The FTA sharpened this further with Public Clarification CTP010<\/strong>, 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 \u2014 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.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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The Documentation Framework: Three Tiers, Three Thresholds<\/h3>\t\t\t\t<\/div>\n\t\t\t\t
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UAE transfer pricing compliance works on three separate levels, and most SMEs only ever encounter the first one.<\/p>

Requirement<\/th>Who it applies to<\/th>What’s needed<\/th><\/tr><\/thead>
Arm’s length principle<\/strong><\/td>Every taxable person with related-party or connected-person transactions<\/td>Basic supporting evidence: comparable pricing, intercompany agreements, a documented rationale<\/td><\/tr>
Transfer Pricing Disclosure Form<\/strong><\/td>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<\/td>Filed with the Corporate Tax Return, within 9 months of the tax period end<\/td><\/tr>
Master File & Local File<\/strong><\/td>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<\/td>Full documentation, produced within 30 days of an FTA request, retained for 7 years<\/td><\/tr><\/tbody><\/table><\/div>

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.<\/p>

This is where the confusion usually starts \u2014 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<\/em>, not what needs to be compliant<\/em>. A transaction well below AED 40 million still has to be priced at arm’s length \u2014 it just doesn’t need to be itemised on the form.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t

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Where This Actually Shows Up for SMEs<\/h3>\t\t\t\t<\/div>\n\t\t\t\t
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In practice, the related-party and connected-person rules surface in a handful of very ordinary situations:<\/p>