The introduction of the UAE’s 2025 Corporate Tax Law marks a major transformation in the way cross-border and intercompany transactions are regulated. For multinational groups and local entities operating within free zones or on the mainland, the new regulations strengthen transfer pricing compliance and documentation obligations. As enforcement becomes more data-driven and risk-focused, businesses are increasingly seeking transfer pricing advisory in UAE to ensure alignment with OECD-based methodologies.

Why the 2025 Corporate Tax Amendments Are Significant

The UAE has strategically updated its corporate tax legislation to reinforce transparency and economic substance while discouraging base erosion and profit shifting. These legislative refinements are not isolated adjustments, but part of a broader alignment with international frameworks shaped by OECD BEPS and the evolving global minimum tax initiatives. Transfer pricing provisions have become more comprehensive and detailed, especially around disclosure, compliance reviews, and contemporaneous documentation.

Scope of Transfer Pricing Under the 2025 Reforms

The law expands regulatory coverage to a wider group of related party transactions, including financing, IP licensing, shared corporate functions, centralized services, procurement, and raw material sourcing. Even free zone entities that benefit from the 0% corporate tax rate must comply if they enter related party transactions. Record-keeping and substantiation requirements have increased significantly, and early preparation has become essential for risk mitigation.

Greater Emphasis on Arm’s Length Principle

The revised regulations embed the arm’s length principle as a cornerstone of transfer pricing governance. Companies must justify that pricing between related parties reflects fair market outcomes similar to transactions between independent entities. The documentation trail must not only demonstrate methodology selection but also defend comparability alignment. This has prompted businesses to rely more on structured economic benchmarking and transfer pricing advisory in UAE to validate pricing integrity.

Mandatory Disclosure and Documentation Enhancements

The 2025 corporate tax changes require more detailed disclosure of intercompany arrangements, including the rationale for allocation of value drivers and benefits. Tax authorities are now empowered to request comprehensive transfer pricing files during audits, including Local Files, Master Files, and supporting economic analyses. The threshold tests for documentation applicability are tied to revenue size and the qualitative nature of the controlled transactions.

Audit Preparedness Takes Center Stage

With the UAE Federal Tax Authority increasing the scope of transfer pricing reviews, audit readiness has shifted from an optional compliance step to a strategic necessity. The absence of adequate documentation may trigger financial penalties or tax adjustments. Authorities are paying closer attention to performance indicators, substance alignment, capital structure, and pricing justification. Businesses must adopt forward-looking pricing models rather than reactive compliance practices.

Substance Requirements and Transfer Pricing Intersection

Transfer pricing compliance is now closely interconnected with economic substance rules. Payment structures between related entities must be supported by functional reality and demonstrate value contribution inside the UAE. “Paper entities” without managerial or operational substance face heightened scrutiny. Intercompany flows related to intangibles, financing, and shared services are areas of elevated risk. The new framework encourages operational relocation of key managerial and control activities to the UAE to anchor substance alignment.

Impact on Free Zone Companies

Free zone entities historically operated with limited reporting burdens, but the 2025 updates change this landscape. Qualifying income must still pass economic substance and arm’s length tests to retain preferential tax status. Mispriced intercompany charges can jeopardize 0% rates. As more free zone entities enter cross-border group arrangements, their oversight exposure increases. As a result, strategic restructuring and documentation improvements have accelerated across these jurisdictions.

Financial Transactions and Intercompany Loans

The UAE’s 2025 tax reforms explicitly address the transfer pricing treatment of intercompany financing activities. Thin capitalization, credit rating substantiation, and risk assumption profiling now play a decisive role in pricing justification. Loan guarantees, cash pooling structures, and treasury centralization transactions fall under active regulatory examination. The law requires clear evidence of commercial rationale and defense of expected return profiles.

Intangible Assets and Royalty Structures

Centralized ownership of intellectual property within a group demands enhanced justification of royalty rates. The UAE authorities now assess the nexus between development, enhancement, maintenance, protection, and exploitation (DEMPE functions) to validate where profits should reside. Royalty arrangements that lack substance, contribution evidence, or jurisdictional relevance may invite transfer pricing scrutiny. Independent comparables and global best practices must guide royalty benchmarking.

Cost Contribution and Shared Service Arrangements

Shared corporate services—such as HR, IT, finance, legal, and strategic advisory—must be priced transparently and supported by benefit analysis. Blanket or arbitrary cost allocations are no longer defensible under the revised tax law. The UAE requires demonstrable linkage between service delivery and benefit realization by the recipient entity. This area has rapidly become one of the most contested elements during audits, driving greater demand for specialized transfer pricing advisory in UAE that focuses on service charge rationalization.

Enhanced Governance and Risk Scoring

Tax authorities in the UAE are adopting risk-based assessment frameworks to identify entities most likely to trigger transfer pricing investigations. Key triggers include persistent losses, high-value IP arrangements, royalty-heavy structures, or disproportionate management fees. Businesses must incorporate governance controls and internal review protocols to reduce risk scores and ensure defensibility of pricing outcomes.

Also Read: Transfer Pricing and BEPS 2.0: UAE’s Role in Global Tax Reforms