Transfer pricing for small groups in UAE: what applies below the big thresholds

Article 34 of the Corporate Tax Law requires transactions between related parties to meet the arm's length standard, meaning the price independent parties would agree in similar circumstances. If they do not, the FTA can adjust taxable income.

There is no size exemption. The FTA's small business relief guidance makes the point directly: a business electing relief does not need transfer pricing documentation, but the arm's length principle still applies.

Article 35 defines related parties broadly. Individuals related within the fourth degree of kinship or affiliation are related. A person and a company are related where the person, alone or with related parties, owns 50% or more of it. Companies under common control are related.

Article 36 adds connected persons: owners, directors, officers and their related parties. Payments to them are deductible only up to market value. So a group's dealings with its owners are tested twice, once for pricing and once for deductibility.

The master file and local file are required only where the taxable person's revenue is AED 200 million or more, or it belongs to a multinational group with consolidated revenue of AED 3.15 billion or more. Most SME groups are far below both.

Article 55 also lets the FTA require a disclosure of related party and connected person transactions with the tax return, and to request supporting documents within 30 days. In practice, that means even a small group needs a clean list of every intra-group transaction, its value and how the price was set.

The classic pattern is profit shifting into the entity with the lowest tax. Example: a mainland Dubai contracting LLC pays a sister company in a free zone AED 1.8 million a year in 'management fees'. The free zone company has two staff and no clear service. If the FTA concludes a fair fee is AED 400,000, it can disallow AED 1.4 million in the mainland company, adding AED 126,000 of tax at 9%.

Other common items: interest-free loans between sister companies, rent-free use of a property owned by one entity, staff shared without recharge, and goods sold between companies at cost. None is forbidden. Each needs a reason and a price you can defend.

• Management and shared service fees: base them on actual costs plus a reasonable mark-up
• Intra-group loans: write a loan agreement and set an interest rate
• Shared staff or premises: recharge on a time or space basis
• Goods between entities: price as you would for an outside customer

Small groups do not need a hundred-page study. They do need a written policy that says how each type of intra-group charge is priced, signed by the directors and applied consistently. One page often covers it: shared staff recharged at cost plus 5%, office space recharged by floor area, intra-group loans at a stated interest rate, and goods sold at the price charged to outside customers.

The policy is only useful if the books follow it. Raise intra-group invoices monthly or quarterly, not as a single year-end journal, and make sure both entities record the same amount in the same period.

Most small-group problems are bookkeeping problems first. One side books a recharge and the other side does not, or the amounts differ. HelloBooks' Business plan holds several entities under one login. The AI agent flags transactions with any customer or supplier marked as a related party and prepares a year-end list of related party transactions by entity and type.

Ask 'show all intra-group charges between the LLC and the free zone company this year' and both sides appear together, with differences highlighted. Your tax agent still decides whether prices are at arm's length. Firms can request a custom related-party report layout through hello@hellobooks.ai.