Transfer Pricing Thresholds Explained (AED 40 Million, AED 4 Million & AED 500,000): A Complete Guide for UAE Businesses

The UAE’s Corporate Tax regime has introduced comprehensive Transfer Pricing (TP) rules to ensure that transactions between Related Parties and Connected Persons are conducted at market value in accordance with the Arm’s Length Principle. While many businesses understand the concept of Transfer Pricing, there is still significant confusion regarding the AED 40 million, AED 4 million, and AED 500,000 thresholds.

Many business owners mistakenly assume these thresholds determine whether Transfer Pricing rules apply. In reality, Transfer Pricing provisions apply to all transactions with Related Parties and Connected Persons, irrespective of their value. These monetary thresholds primarily determine what must be disclosed in the Corporate Tax Return, not whether the transactions are subject to the UAE Transfer Pricing rules.

Understanding these thresholds is essential for every UAE business involved in related-party transactions, as misunderstanding them can result in incorrect Corporate Tax disclosures, increased scrutiny by the Federal Tax Authority (FTA), and potential tax adjustments or penalties.

In this guide, German Fintax Consultancy explains these important thresholds, their practical implications, and how UAE businesses can remain compliant with the Federal Tax Authority (FTA).

Quick Overview of the UAE Transfer Pricing Thresholds

Before diving into the details, the table below provides a quick summary of the three key Transfer Pricing thresholds under the UAE Corporate Tax regime.

These thresholds relate only to Corporate Tax reporting and disclosure obligations. They do not determine whether the Transfer Pricing rules themselves apply.

Understanding UAE Transfer Pricing

Transfer Pricing refers to the pricing of transactions between:

• Parent and subsidiary companies
• Companies under common ownership
• Branches of the same legal entity
• Shareholders and their businesses
• Directors and companies they control
• Family-owned related businesses

Under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (particularly Articles 34, 35 and 36), transactions between Related Parties and Connected Persons must comply with the Arm’s Length Principle, meaning they should be priced as if they were carried out between independent parties under similar circumstances.

The UAE’s Transfer Pricing framework is largely aligned with the OECD Transfer Pricing Guidelines, reflecting internationally accepted principles for determining arm’s length pricing.

In addition to the Corporate Tax Law, businesses should also be aware of:

• Ministerial Decision No. 97 of 2023 concerning Transfer Pricing Documentation
• Ministerial Decision No. 301 of 2024 prescribing the information and disclosures required in the UAE Corporate Tax Return
• Relevant guidance and publications issued by the Federal Tax Authority (FTA)

These legislative provisions collectively establish the Transfer Pricing framework, documentation requirements, and disclosure obligations applicable to UAE businesses.

Why Do These Thresholds Matter?

The three commonly discussed figures are:

• AED 40 Million
• AED 4 Million
• AED 500,000

These thresholds determine when additional information must be disclosed in the UAE Corporate Tax Return.

They are commonly referred to as “disclosure thresholds” because they determine the extent of reporting required by a taxable person.

Importantly, these thresholds do not exempt businesses from complying with the Arm’s Length Principle, nor do they relieve businesses from maintaining appropriate supporting documentation for related-party transactions.

Understanding “Aggregate” Transactions

One of the most misunderstood terms in the UAE Transfer Pricing rules is “aggregate”.

Aggregate simply means the combined total value of all transactions with Related Parties during a tax period, regardless of their nature.

For example, if a business has the following related-party transactions during the year:

• Sale of goods – AED 18 million
• Purchase of inventory – AED 12 million
• Management service fees – AED 7 million
• Loan interest – AED 5 million

The aggregate value is AED 42 million (18 + 12 + 7 + 5), meaning the AED 40 million disclosure threshold has been exceeded.

Threshold 1: AED 40 Million – Aggregate Related Party Transactions

This is the primary Related Party disclosure threshold under the UAE Corporate Tax Return.

If the aggregate value of all Related Party transactions during a tax period exceeds AED 40 million, additional Transfer Pricing disclosures become mandatory in the Corporate Tax Return.

As explained above, “aggregate” means the combined value of all Related Party transactions undertaken during the relevant tax period.

Related-party transactions may include:

• Sale of goods
• Purchase of inventory
• Management service charges
• Technical service fees
• Interest on loans
• Intellectual property royalties
• Asset transfers
• Rental arrangements
• Financing transactions

Example

ABC Trading LLC has the following transactions with related companies:

• Goods purchased: AED 22 million
• Goods sold: AED 15 million
• Management fees: AED 6 million

Aggregate Related Party Transactions = AED 43 million

Since the aggregate value exceeds AED 40 million, ABC Trading LLC must complete the Related Party disclosure section of its Corporate Tax Return.

It is important to note that exceeding the AED 40 million threshold does not automatically require every transaction category to be disclosed individually. The separate AED 4 million threshold determines which individual transaction categories must be reported, as explained in the next section.

Businesses should therefore monitor their Related Party transactions throughout the financial year rather than waiting until the Corporate Tax Return is being prepared. Early monitoring helps identify reporting obligations, reduces compliance risks, and provides sufficient time to gather the necessary supporting documentation.

Threshold 2: AED 4 Million – Individual Transaction Categories

The AED 4 million threshold works together with the AED 40 million aggregate Related Party transaction threshold.

One of the most common misconceptions is that the AED 4 million threshold applies independently. This is incorrect.

The AED 4 million threshold does not operate as a standalone reporting threshold. It only becomes relevant after the aggregate value of all Related Party transactions during the tax period exceeds AED 40 million.

Once the aggregate Related Party transactions exceed AED 40 million, businesses must disclose each transaction category where the aggregate value of that particular category exceeds AED 4 million.

In simple terms:

• Step 1: Determine whether the aggregate value of all Related Party transactions exceeds AED 40 million.
• Step 2: If the AED 40 million threshold has been exceeded, identify each transaction category with an aggregate value exceeding AED 4 million.
• Step 3: Only those qualifying categories must be disclosed separately in the Corporate Tax Return.

If the aggregate Related Party transactions do not exceed AED 40 million, the AED 4 million threshold is irrelevant for disclosure purposes.

Categories may include

• Goods
• Services
• Loans
• Interest
• Royalties
• Intellectual Property
• Financial guarantees
• Asset transfers

Example

Suppose a company has the following Related Party transactions::

Aggregate Related Party Transactions = AED 44 million

Since the aggregate value exceeds AED 40 million, the company must review each transaction category individually.

Disclosure is required for:

• Sale of goods
• Purchase of goods
• Loan interest

Management fees would generally not require separate category disclosure because the aggregate value for that category is below AED 4 million, even though the overall AED 40 million threshold has been exceeded.

This two-step reporting mechanism is intended to ensure that businesses disclose only material transaction categories while avoiding unnecessary reporting of relatively small categories.

Threshold 3: AED 500,000 – Connected Persons

The AED 500,000 threshold applies specifically to Connected Persons and should not be confused with Related Party transaction thresholds.

Unlike the AED 40 million and AED 4 million thresholds, which relate to Related Party transactions, the AED 500,000 threshold focuses on payments or benefits provided to Connected Persons.

Connected Persons generally include:

• Owners
• Shareholders
• Directors
• Partners
• Senior management
• Certain natural persons connected to these individuals, as defined under the UAE Corporate Tax Law

The definition of a Connected Person is prescribed under the UAE Corporate Tax Law and should be carefully assessed, as not every Related Party is necessarily a Connected Person.

If the aggregate payments or benefits provided to one Connected Person exceed AED 500,000 during the tax period, those payments must be disclosed in the Corporate Tax Return.

Payments or benefits may include

• Salary
• Director remuneration
• Bonuses
• Consultancy fees
• Rent
• Interest
• Other monetary or non-monetary benefits

Example

Director remuneration:

AED 650,000

Since the payment exceeds AED 500,000 during the tax period, the remuneration must be disclosed in the Corporate Tax Return.

Businesses should also ensure that payments made to Connected Persons satisfy the Arm’s Length Principle and comply with the deductibility requirements under the UAE Corporate Tax Law, where applicable.

Since this exceeds AED 500,000, the payment must be disclosed.

Important Point: Transfer Pricing Still Applies Below These Thresholds

One of the biggest misconceptions among UAE businesses is that Transfer Pricing only applies when the AED 40 million threshold is exceeded.

This is incorrect.

The UAE Corporate Tax Law requires all transactions with Related Parties and Connected Persons to comply with the Arm’s Length Principle, irrespective of their value.

Even if your related-party transactions total:

• AED 500,000
• AED 2 million
• AED 10 million
• AED 25 million

you are still required to ensure that those transactions are priced at arm’s length and supported by appropriate documentation where necessary.

The AED 40 million, AED 4 million, and AED 500,000 thresholds merely determine the extent of disclosures required in the Corporate Tax Return. They do not remove the underlying legal obligation to comply with the UAE Transfer Pricing rules.

Failure to apply arm’s length pricing, even where disclosure thresholds are not exceeded, may still result in adjustments by the Federal Tax Authority (FTA) if transactions are found to be inconsistent with the requirements of the Corporate Tax Law.

How Do These Thresholds Differ from Master File and Local File Requirements?

Many businesses confuse disclosure thresholds with documentation thresholds.

These are two entirely separate compliance requirements under the UAE Transfer Pricing regime.

The AED 40 million, AED 4 million, and AED 500,000 thresholds determine what information must be disclosed in the Corporate Tax Return.

The Master File and Local File requirements determine whether detailed Transfer Pricing documentation must be prepared and maintained.

A business is generally required to maintain a Master File and Local File if:

• It is part of a Multinational Enterprise (MNE) Group with consolidated group revenue of AED 3.15 billion or more, or
• Its own revenue is AED 200 million or more during the relevant tax period.

Therefore:

• AED 40 Million / AED 4 Million / AED 500,000 → Disclosure thresholds
• AED 200 Million / AED 3.15 Billion → Documentation thresholds

Businesses should not assume that because they fall below the documentation thresholds, they have no Transfer Pricing obligations.

Although a Master File and Local File may not be mandatory below the prescribed thresholds, businesses should still maintain sufficient supporting records to demonstrate that Related Party transactions were undertaken at arm’s length if requested by the FTA during a review or audit.

Examples of supporting records may include agreements, invoices, pricing calculations, benchmarking information (where available), board approvals, commercial correspondence, and any other evidence supporting the pricing methodology adopted.

Common Mistakes UAE Businesses Make

Many companies unintentionally expose themselves to compliance risks by:

• Ignoring related-party transactions below AED 40 million
• Believing Transfer Pricing only affects multinational corporations
• Not documenting the basis for intercompany pricing
• Overlooking payments made to directors and shareholders
• Incorrectly classifying related parties and connected persons
• Waiting until Corporate Tax filing to review transactions
• Maintaining incomplete supporting documentation
• Failing to monitor transaction values throughout the financial year
• Assuming that domestic UAE transactions are automatically exempt from Transfer Pricing rules
• Ignoring changes in ownership structures that may create new Related Party relationships

Best Practices for UAE Businesses

To strengthen Transfer Pricing compliance, businesses should:

• Identify all related parties and connected persons.
• Maintain a register of all intercompany transactions.
• Apply the Arm’s Length Principle consistently.
• Monitor transaction values throughout the year.
• Review whether disclosure thresholds have been crossed before filing the Corporate Tax Return.
• Keep benchmarking studies and supporting documentation where appropriate.
• Seek professional advice for complex group structures or cross-border transactions.
• Conduct periodic internal Transfer Pricing health checks to identify compliance gaps before an FTA review or audit.
• Retain documentation in an organised manner so it can be readily produced if requested by the Federal Tax Authority.

Taking a proactive approach to Transfer Pricing compliance throughout the year is significantly more effective than attempting to address issues shortly before filing the Corporate Tax Return. Proper planning reduces compliance risks, strengthens audit readiness, and minimises the likelihood of future tax adjustments or disputes.

How German Fintax Consultancy Can Help

Transfer Pricing compliance involves far more than simply completing disclosure sections in the Corporate Tax Return. It requires businesses to establish defensible pricing policies, maintain appropriate documentation, monitor Related Party and Connected Person transactions throughout the year, and ensure ongoing compliance with the UAE Corporate Tax legislation.

With the increasing focus of the Federal Tax Authority (FTA) on Transfer Pricing compliance, businesses should adopt a proactive approach rather than addressing Transfer Pricing only at the time of filing their Corporate Tax Return.

German Fintax Consultancy assists UAE businesses with:

• Transfer Pricing risk assessments
• Identification of Related Parties and Connected Persons
• Review of Related Party transactions
• Arm’s Length pricing analysis
• Functional, Asset and Risk (FAR) analysis
• Benchmarking studies
• Transfer Pricing policy development
• Corporate Tax compliance advisory
• Preparation of Transfer Pricing Disclosure Forms
• Local File preparation
• Master File preparation
• Transfer Pricing documentation reviews
• FTA audit support
• Ongoing Transfer Pricing compliance advisory

Whether you are a mainland company, Free Zone business, family-owned enterprise, or part of a multinational group, our experienced tax professionals help ensure that your Transfer Pricing policies align with the UAE Corporate Tax Law, OECD Transfer Pricing Guidelines, and FTA requirements while minimising tax risks and compliance exposures.

Conclusion

Understanding the AED 40 million, AED 4 million, and AED 500,000 Transfer Pricing thresholds is essential for every UAE business that enters into transactions with Related Parties or Connected Persons.

These thresholds are often misunderstood. They are disclosure thresholds, not exemption thresholds. While they determine the extent of reporting required in the Corporate Tax Return, they do not determine whether the UAE Transfer Pricing rules apply.

Regardless of the transaction value, businesses are required to comply with the Arm’s Length Principle under the UAE Corporate Tax Law and maintain sufficient supporting documentation to substantiate their pricing where necessary.

By identifying Related Party relationships early, monitoring transaction values throughout the year, maintaining appropriate documentation, and reviewing disclosure obligations before filing the Corporate Tax Return, businesses can significantly reduce compliance risks and strengthen their readiness for any future FTA review or audit.

As the UAE Corporate Tax regime continues to evolve, businesses that implement robust Transfer Pricing policies and documentation practices today will be better positioned to manage regulatory expectations, minimise tax risks, and ensure long-term compliance.

If your business engages in transactions with Related Parties or Connected Persons, obtaining professional Transfer Pricing advice can help ensure that your pricing policies, documentation, and Corporate Tax disclosures fully comply with the UAE Corporate Tax legislation and the expectations of the Federal Tax Authority.

Frequently Asked Questions (FAQs)

1. Does the AED 40 million threshold determine whether Transfer Pricing applies?

No. Transfer Pricing rules apply to all transactions between Related Parties and Connected Persons, irrespective of their value. The AED 40 million threshold only determines when additional Related Party disclosures become mandatory in the Corporate Tax Return.

2. What is the purpose of the AED 4 million threshold?

Once the aggregate value of Related Party transactions exceeds AED 40 million, each individual transaction category with an aggregate value exceeding AED 4 million must be disclosed separately in the Corporate Tax Return. The AED 4 million threshold does not apply independently.

3. Who is considered a Connected Person?

Connected Persons generally include:

• Owners
• Shareholders
• Directors
• Partners
• Senior management
• Certain natural persons connected to these individuals, as defined under the UAE Corporate Tax Law.

Because the definition is prescribed by law, businesses should carefully assess each relationship before concluding whether a person qualifies as a Connected Person.

4. Does the AED 500,000 threshold apply to related-party transactions?

No. The AED 500,000 threshold applies specifically to payments or benefits provided to Connected Persons and should not be confused with the Related Party disclosure thresholds.

5. Do small businesses need Transfer Pricing documentation?

Yes. Even businesses that fall below the mandatory Master File and Local File thresholds should maintain sufficient documentation demonstrating that their Related Party transactions comply with the Arm’s Length Principle. Although comprehensive documentation may not always be mandatory, maintaining appropriate supporting records can significantly reduce compliance risks during an FTA review or audit.

6. Do domestic UAE transactions also fall under the Transfer Pricing rules?

Yes. The UAE Transfer Pricing rules apply to both domestic and cross-border transactions involving Related Parties or Connected Persons, unless a specific exemption is available under the Corporate Tax Law. Businesses should therefore not assume that transactions conducted entirely within the UAE are automatically outside the scope of Transfer Pricing.

7. Are Free Zone companies also subject to Transfer Pricing rules?

Yes. Qualifying Free Zone Persons (QFZPs) and other Free Zone businesses are also required to comply with the UAE Transfer Pricing provisions when undertaking transactions with Related Parties or Connected Persons. Transfer Pricing compliance remains important even where a Free Zone business qualifies for the 0% Corporate Tax rate.

8. What records should businesses maintain for Transfer Pricing purposes?

Businesses should maintain documentation appropriate to the nature and size of their transactions.

Supporting records may include:

• Intercompany agreements
• Invoices
• Pricing calculations
• Benchmarking studies
• Board resolutions
• Commercial correspondence
• Financial records
• Transfer Pricing policies
• Functional analyses
• Any documentation supporting the adopted pricing methodology.

Maintaining organised records throughout the year can significantly simplify Corporate Tax compliance and support businesses during an FTA review.

9. What happens if transfer pricing disclosures are incorrect?

Incorrect, incomplete, or misleading disclosures may increase the likelihood of FTA enquiries, tax audits, Transfer Pricing adjustments, and administrative penalties where non-compliance with the Corporate Tax Law is identified. Businesses should therefore review their Related Party and Connected Person transactions carefully before submitting their Corporate Tax Return.

10. How can businesses prepare for Transfer Pricing compliance?

Businesses should:

• Identify all Related Parties and Connected Persons early.
• Maintain complete records throughout the financial year.
• Apply the Arm’s Length Principle consistently.
• Monitor disclosure thresholds regularly.
• Prepare documentation proactively.
• Seek professional advice for complex transactions or group structures.

Taking these steps early helps minimise compliance risks and ensures smoother Corporate Tax reporting.