Tax & compliance
Transfer pricing and related party transactions
Every transaction with a related party has to be priced as if it were with a stranger, and you have to be able to show it. Founder salaries and intra-group charges are where this bites for ordinary companies.
The rule
What the law actually requires.
UAE corporate tax requires transactions between related parties and connected persons to be conducted at arm's length — the price that would have applied between independent parties. This applies to sales of goods and services between group companies, management charges, intra-group loans and interest, licensing of intellectual property, and payments to connected persons such as shareholders and their relatives. Where thresholds are met, formal documentation is required: a master file, a local file, and disclosure in the tax return.
It is widely assumed to be a large-company issue and it is not. The provision on connected persons catches something very ordinary: a shareholder-director paying themselves a salary from their own company. That payment must be commensurate with the market value of the services actually provided, because otherwise every owner-managed business would simply pay out its profits as salary and report no taxable income. The same logic applies to rent paid to a shareholder for premises, to interest on a director's loan, and to a management charge from an overseas parent. None of these needs a formal study for a small company, but all of them need a defensible basis written down.
Thresholds and deadlines
- Standard
- Arm's length — the price independent parties would agree
- Scope
- Related parties and connected persons
- Connected persons
- Shareholders, directors, and their relatives
- Common exposure
- Owner-manager salary, shareholder rent, intra-group charges
- Documentation
- Master file and local file where thresholds are met
- Disclosure
- Related party transactions are reported in the return
The compliance calendar
Proportions indicative — they shift with visa count, premises and activity.
What to do
The filing, step by step.
- List every related party transactionIncluding the ones that do not feel like transactions: your own salary, rent to a shareholder, a loan from a parent company.
- Establish a basis for each priceComparable market rates, a cost-plus calculation, or an independent quote. Write down the reasoning at the time.
- Pay owner-manager salary on a defensible basisCommensurate with services actually performed. A salary set to absorb the profit is the pattern the rule exists to prevent.
- Check whether documentation thresholds applyMaster file and local file obligations attach at defined levels of revenue or group size.
- Disclose in the returnRelated party transactions are reported. Omitting them is a disclosure failure separate from the pricing question.
Related
Questions
The arm's-length requirement applies generally. Formal documentation obligations attach at thresholds, but the pricing standard itself does not have a small-company exemption.
As a shareholder-director, yes — you are a connected person, and the payment must be commensurate with the services you actually provide.
A master file and local file where the thresholds are met. Below them, a written basis for each material related party price is the practical standard.
Yes, and compliance with transfer pricing rules is an express condition of Qualifying Free Zone Person status.
One question
Where does your company stand right now?
Then the thing to verify is qualifying status rather than the rate. Qualifying Free Zone Person is a set of conditions tested every year — substance, qualifying income, the de minimis threshold, audited accounts — and failing any one of them costs the 0% rate for that year and the four that follow.
The QFZP conditions in fullOr just ask usThen Small Business Relief has probably been carrying you, and it ends for tax periods after 31 December 2026. There is no announced extension. The first return without it is the one that surprises people, and the planning has to happen before the period starts rather than at filing.
What happens when the relief endsOr just ask usThen deal with that first. Registration is mandatory for loss-making and dormant companies too, the penalty for missing the window is AED 10,000, and it has been issued to companies with no revenue at all. It is the most avoidable fine in the system.
Deadlines and penaltiesOr just ask us