Transfer Pricing for Indian-Owned UAE Companies

Why this catches India-UAE structures specifically

We see the same pattern constantly: an Indian family runs a manufacturing or trading business at home, sets up a UAE entity to sell into the Gulf or re-export further afield, and treats the two companies as one operation because, in practice, they are run by the same people. The UAE company buys stock from the Indian parent, the Indian parent invoices a "head office" fee, a director's relative on the UAE payroll is really doing work for both sides, or the UAE entity borrows working capital from the group rather than a bank. None of this is unusual, and none of it is a problem — but every one of those transactions is a related-party transaction under UAE Corporate Tax law, and it needs to be priced and documented as if the two companies were strangers dealing with each other.

The transactions we see most often

• Purchase of goods for trading or distribution — the UAE entity buys inventory from the Indian manufacturer or group supplier at a price set internally rather than benchmarked to market.
• Management or head-office fees paid from the UAE company to the Indian parent (or the reverse, where the UAE entity provides sourcing or client-facing services back to India).
• Intercompany loans and shareholder advances — working capital moved between the entities without a loan agreement, interest rate, or repayment schedule.
• Shared staff, rent, or overhead recharges — one entity's employee doing work for both, or one office effectively hosting both operations, with costs split informally.
• Brand, trademark, or IP licensing — the UAE entity trading under a brand name owned by the Indian parent, with no licence fee, or one set arbitrarily.

The arm's-length principle, in practice

UAE Corporate Tax law requires related-party transactions to be priced as they would be between independent parties under comparable circumstances — the arm's-length principle. In practice, for a typical India-UAE structure this means being able to show, for each transaction type above, what an unrelated party would have charged: a market markup on goods bought for distribution, a market interest rate on intercompany loans (with actual loan terms in writing), and a reasonable, benchmarked fee for management services or brand use rather than a round number chosen for convenience. The FTA is not asking every SME to commission an expensive economist's report — it is asking for a defensible, written basis for the numbers already on the books.

Disclosure form, Local File and Master File thresholds

Not every business needs the same level of documentation. Three separate thresholds matter, and India-UAE groups typically sit below the two document-heavy ones but still squarely inside the disclosure requirement:

Most two- or three-entity India-UAE groups fall well under the Master File and Local File revenue thresholds — that documentation is aimed at large multinationals, not a family trading business. But the disclosure schedule threshold is much lower, and a UAE entity that buys AED 4-5 million of stock a year from its Indian parent, or has a handful of intercompany loans, can cross the AED 40 million aggregate line faster than expected once every related-party transaction for the year is added up, not just the obvious ones.

What documentation actually looks like for a two-entity group

For most India-UAE structures below the Master File threshold, proper documentation is a short, practical file rather than a formal transfer pricing study: a one-page description of the group structure and who owns what; a list of every related-party transaction in the year with the amount and how the price was set; loan agreements with a stated interest rate for any intercompany financing; and a brief benchmarking note — even two or three comparable market prices or interest rates — showing the numbers used are reasonable. That file does not need to be submitted with the return, but if the FTA asks, current guidance gives 30 days to produce it, and that window is for handing over an existing file, not building one from scratch.

Common mistakes we see in India-UAE structures

1. No written loan terms. Money moves between the entities as "temporary" advances for years, with no interest rate, no agreement, and no clarity on whether it is a loan or a capital contribution.
2. Round-number management fees. A fee is set at a convenient figure — often to manage where profit sits — rather than benchmarked to what an equivalent outsourced service would cost.
3. Related-party purchases treated as ordinary supplier invoices. The UAE entity's bookkeeping shows the Indian parent as just another vendor, with no flag that it is a related party, which makes the year-end related-party schedule a scramble.
4. Family members on payroll in both countries without a clear allocation of who they actually work for, which complicates both the connected-person schedule and Indian-side compliance.
5. Assuming small size means exemption. The Master File and Local File thresholds are high, but the disclosure schedule and the arm's-length requirement itself apply regardless of group size.

What to do now

Start by listing every transaction between the UAE entity and any related Indian company for the current tax period — goods, fees, loans, recharges, everything — and add up the totals against the AED 40 million and AED 4 million lines. Put loan terms in writing if they are not already. For management fees or brand use, have a short note on file explaining how the figure was arrived at. None of this needs to wait for the FTA to ask; getting it in order now, while the return is being prepared, is far less work than reconstructing it under a 30-day deadline later.

Frequently asked questions

This guide is general information based on UAE law and FTA guidance as at the update date, not professional advice. Rules change; confirm your position with a Chartered Accountant before acting.