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Table of Contents
Introduction
With the UAE introducing federal corporate tax and Saudi Arabia enforcing stricter transfer pricing (TP) regulations, multinational companies (MNCs) operating in these countries must ensure full compliance to avoid heavy fines, double taxation, and reputational risks.
This guide covers:
✔ Latest TP rules in UAE & KSA (2024 updates)
✔ Documentation requirements (Master File, Local File, CbCR)
✔ Penalties for non-compliance
✔ Best practices to stay audit-ready
What is Transfer Pricing?
Transfer pricing refers to the rules for pricing transactions between related entities (e.g., parent company and subsidiary) in different tax jurisdictions. The goal is to ensure arm’s length pricing (fair market value) and prevent profit shifting.
Why It Matters in UAE & KSA?
- UAE: Introduced TP rules under Corporate Tax Law (2023)
- KSA: Follows OECD Guidelines + ZATCA (Saudi Tax Authority) enforcement
- Penalties: Up to AED 500,000 (UAE) and SAR 1 million (KSA) for non-compliance
Transfer Pricing Rules: UAE vs. KSA
| Aspect | UAE | Saudi Arabia (KSA) |
|---|---|---|
| Legal Framework | Corporate Tax Law (2023) | OECD Guidelines + ZATCA Rules |
| Arm’s Length Principle | Mandatory | Mandatory |
| Documentation | Master File, Local File | Master File, Local File, CbCR |
| Thresholds | AED 200M revenue (Master File) | SAR 240M revenue (CbCR) |
| Penalties | Up to AED 500K | Up to SAR 1M + tax adjustments |
Key Compliance Requirements
1. Maintain Proper Documentation
- Master File: Global business overview (for large MNCs)
- Local File: Detailed transaction analysis (required for all)
- Country-by-Country Report (CbCR): Only for KSA entities with >SAR 3.2B revenue
2. Apply Arm’s Length Principle
Use OECD-approved methods:
✔ Comparable Uncontrolled Price (CUP)
✔ Cost Plus Method
✔ Transactional Net Margin Method (TNMM)
3. Submit Disclosures with Tax Returns
- UAE: TP disclosure form with annual CT return
- KSA: ZATCA requires annual TP filing
Penalties for Non-Compliance
| Violation | UAE Penalty | KSA Penalty |
|---|---|---|
| Late/missing documentation | AED 20K–50K | SAR 50K–100K |
| Incorrect TP disclosures | AED 10K–30K | SAR 100K–500K |
| Tax evasion via TP manipulation | AED 500K + 200% tax | SAR 1M + 300% tax |
Case Study: How a Dubai-Based MNC Avoided Penalties
A tech firm with UAE/KSA operations faced a ZATCA audit after inconsistent intercompany charges. Ghalib Consulting helped:
✅ Prepare OECD-compliant TP documentation
✅ Adjust royalty fees using TNMM method
✅ Avoid SAR 750K in penalties
5 Best Practices for Compliance
- Conduct a TP Risk Assessment – Identify gaps early.
- Benchmark Transactions – Use regional comparables.
- Automate Reporting – Leverage TP software for accuracy.
- Train Finance Teams – Ensure awareness of UAE/KSA rules.
- Consult Experts – Engage a tax advisory firm like Ghalib Consulting.
Conclusion
With UAE and KSA increasing TP audits, businesses must prioritize compliance to avoid financial and legal risks. Proper documentation, arm’s length pricing, and expert guidance are critical.
📞 Need help with transfer pricing? Book a free consultation with Ghalib Consulting today!