Transfer pricing sounds like something only giant multinationals worry about. But surprise, even your early-stage startup with one entity in Dubai and another in India or Estonia may be subject to UAE Transfer Pricing regulations. As the UAE enters a new tax era, understanding how you price inter-company transactions is crucial, not just for compliance, but for protecting your bottom line.
What Is Transfer Pricing?
Transfer pricing refers to the pricing of goods, services, or intellectual property transferred between related entities within a multinational group. For instance, if your UAE-based holding company charges your Indian tech subsidiary for software development or support, how do you set a fair price?
This is where arm’s length pricing comes in. The UAE follows OECD Transfer Pricing Guidelines, which require that such intra-group transactions be priced as if the two entities were unrelated. That means no sweetheart deals to shift profits or reduce tax liabilities.
Example: Amazon’s transfer pricing case in the EU is a reminder of how serious tax authorities can get when pricing between related companies isn’t well justified.
Why UAE Startups Need to Pay Attention
In 2023, the UAE introduced a 9% federal corporate tax on business profits exceeding AED 375,000. This makes transfer pricing a serious issue for startups that operate internationally or hold IP across jurisdictions.
Here are scenarios where UAE Transfer Pricing becomes relevant:
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Your UAE company pays a foreign sister company for development services.
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Your Dubai HQ licenses software IP to your branch in Europe.
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You charge a Saudi subsidiary for shared marketing resources.
Even if you’re a startup, regulators expect documentation that supports the pricing logic behind these transactions.
What the Law Requires
Here’s what the UAE Corporate Tax Law and Ministerial Decision No. 97 of 2023 require if you’re part of a qualifying group:
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Arm’s Length Principle (ALP): You must price your intercompany transactions based on market rates.
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Master File and Local File: Required if your consolidated revenue exceeds AED 200 million.
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Country-by-Country Reporting (CbCR): Applies to large multinationals (AED 3.15 billion global revenue), but startups should still be aware of group-wide obligations.
How to Stay Compliant
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Get your paperwork in order
Create intercompany agreements with clear terms, pricing methods, and deliverables. Use accepted pricing models like Cost Plus, CUP, or TNMM, depending on the nature of the transaction. -
Document and benchmark
Maintain internal pricing documentation, including benchmark studies using third-party data sources like RoyaltyRange or TP Catalyst. -
Consult advisors or tools
Many startups rely on tax advisory firms or AI-powered tools like Zyla for automated benchmarking and documentation.
What Happens If You Don’t Comply?
Non-compliance can lead to:
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Hefty penalties
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Adjusted tax assessments
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Audits and reputational risk
Startups may think they can fly under the radar, but once profits cross AED 375,000, you’re squarely within the UAE’s tax lens.
Conclusion
UAE Transfer Pricing is no longer just a “big business” problem. With the UAE’s tax framework aligning with global norms, startups must evolve fast. Build systems early, document smart, and treat compliance as a strategic asset, not a burden.
💡 FounderX helps you navigate these complexities with ease. Whether you need help drafting intercompany agreements, preparing transfer pricing files, or building a compliant UAE entity structure, we’re your growth partner every step of the way. Let’s scale smart, together.
