What is the arm's length principle? Related-party pricing under UAE corporate tax

Article 34(2) of Federal Decree-Law No. 47 of 2022 requires the result of a related-party transaction to match the result that would have been achieved if persons who were not related parties had transacted under similar circumstances. Article 34(3) recognises five methods: comparable uncontrolled price, resale price, cost plus, transactional net margin and transactional profit split.

Article 35 defines related parties. It includes natural persons related to the fourth degree of kinship or affiliation, and persons linked by ownership or control of 50% or more.

Family-owned groups across Dubai, Sharjah and Abu Dhabi often move goods, staff and services between companies without much thought about price. Under corporate tax that habit carries a risk. If a mainland trading company buys stock from a related free zone company at AED 1.2 million when independent suppliers would charge AED 1 million, the FTA can look at whether profit has been shifted.

The FTA's corporate tax guidance confirms that transfer pricing rules apply to businesses with transactions with related parties and connected persons. For qualifying free zone persons, complying with Article 34 is also one of the Article 18 conditions.

HelloBooks lets you mark customers and suppliers as related parties and tag intercompany transactions, so they can be listed and totalled for your transfer pricing file. On the Business plan, multi-entity management shows both sides of each intercompany deal. The AI agent can answer 'what did we pay our related companies this year?' with the invoices behind each figure. Setting the price and documenting the method remain with you and your adviser.

Terms that come with transfer pricing.

• Related party
• Connected person
• Qualifying free zone person
• Permanent establishment