When companies within the same corporate group trade with each other—whether it’s goods, services, financing, or use of intellectual property—the prices they set are called transfer prices. The process of defining these prices is known as transfer pricing (TP).
Although internal pricing may look like an accounting exercise, it has real tax consequences. By adjusting how much one branch charges another, a group can shift income into low-tax countries, reducing the overall tax burden. Because of this, transfer pricing is tightly regulated across the world, and the UAE is no exception.
Who Counts as a Related Party?
The cornerstone of transfer pricing regulation is the concept of a related party. In simple terms, these are individuals or companies that are so closely linked—through ownership, management, or family ties—that they cannot be considered independent.
In everyday business language, related parties include parent companies, subsidiaries, joint ventures, controlled affiliates, and even individuals with significant influence over decision-making. The UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) expands this definition to make sure nearly all meaningful connections are covered.
The UAE’s Practical Definition
Instead of dense legal text, here’s how the UAE rules apply in practice:
Family relationships – Close relatives, including those connected by adoption or guardianship, are considered related parties up to the fourth degree of kinship.
Individuals and businesses – A person who owns or controls half or more of a company’s shares is automatically linked to it. The same applies if influence is exercised indirectly through relatives or intermediaries.
Company-to-company links – Two legal entities are related if one owns at least 50% of the other, or if the same individual controls both simultaneously.
Branches and head office – A business and its UAE branch (permanent establishment) are regarded as related entities.
Partnerships – Partners working together without setting up a legal entity are treated as related parties.
Trusts and foundations – Founders, trustees, and beneficiaries, along with their connected parties, also fall under the definition.
This broad scope ensures that the Federal Tax Authority (FTA) can monitor profit shifting across a wide range of ownership and management structures.
Why These Provisions Matter
Without TP rules, a multinational could easily reduce its taxes by relocating profits on paper. For instance:
A UAE distributor might overpay its parent company abroad for marketing support, cutting taxable profit in the Emirates.
A local subsidiary could sell products at a discount to a sister company in a tax-free jurisdiction, again reducing taxable income in the UAE.
The law prevents this by requiring that all such transactions be priced on market-based terms—as if the parties were independent.
Key Issues Businesses Should Watch
When entering agreements with related parties, companies should always ask themselves:
Detection: What indicators might tax authorities use to uncover hidden relationships (shared directors, overlapping ownership, or unusual pricing)?
Impact: If the FTA re-prices a transaction, how will it affect taxable income and group reporting?
Preparation: Do we have contracts, benchmarking studies, and functional analyses ready to defend our pricing?
ADE Professional Solutions: Practical Support for Businesses
At ADE Professional Solutions, we help companies transform complex compliance requirements into clear, workable processes. Our expertise includes:
Transaction analysis – reviewing intercompany dealings and highlighting potential risks.
Practical guidance – advising on which TP method best reflects specific transactions.
Documentation packages – preparing Master File and Local File reports with full benchmarking and justification.
Tailored consulting – supporting clients during tax audits, group restructurings, or high-risk transactions.
Over the last 10+ years, we’ve advised well-known brands such as Volvo, Ritter Sport, Hansgrohe, Miele, Doppelmayr, Hoya Holding, Biocodex, and others on their transfer pricing strategies.
The UAE’s corporate tax regime has changed the way businesses must approach internal transactions. Related party rules now apply broadly, covering not only obvious parent-subsidiary structures but also partnerships, trusts, and family connections. For companies, this means that transfer pricing can no longer be treated as an internal formality. It must be documented, benchmarked, and defensible. Businesses that take a proactive approach—viewing TP compliance as part of good governance—will reduce risks, avoid penalties, and strengthen trust with regulators and investors.
With the right advisory partner, like ADE Professional Solutions, companies can navigate these rules confidently and focus on growing their business in the UAE’s evolving tax environment.
