Insights · India-UAE Corridor
Transfer Pricing Between India and the UAE: Related-Party Transactions Under Two Regimes
How Indian and UAE transfer pricing rules apply to the same intercompany transactions, which India-UAE structures attract scrutiny, and how to keep both sets of documentation consistent.
Every transaction between an Indian company and its related UAE company has to be priced at arm’s length under Indian law, and since June 2023 under UAE law as well. India has no minimum value for this: a single invoice to a Dubai affiliate brings in the accountant’s report. With UAE corporate tax at 9% or 0% against roughly 25% in India, Indian tax officers look closely at what the UAE entity really does for the profit it keeps.
Key points
- India: accountant’s report for all international transactions with associated enterprises, due 31 October after the year end, with no minimum threshold
- India: contemporaneous documentation once such transactions exceed Rs 1 crore in the year
- India: penalty of 2% of transaction value for failing to report or document, and Rs 1 lakh for not filing the report
- UAE: arm’s length standard for all related-party and connected-person dealings; disclosure form with the return above the prescribed value; master and local file at AED 200 million revenue or AED 3.15 billion group revenue
- A UAE free-zone company loses its 0% rate if it does not comply with transfer pricing rules
The structures we see, and how they are tested
| Structure | What the officer asks |
|---|---|
| UAE trading or re-invoicing company between the Indian manufacturer and overseas customers | Who finds customers, negotiates price, carries stock and credit risk? If that is all done in India, the UAE margin should be that of a low-risk agent. |
| UAE company charging management or support fees to India | Was a service actually rendered, was it needed, is there duplication, and how was the charge computed? |
| Brand or technology held in the UAE and licensed to India | Who developed, enhanced and maintains the intangible? Legal ownership without people earns only a financing return. |
| Indian company providing development or back-office services to a UAE principal | Is the cost-plus mark-up in line with comparable Indian service providers? |
| Loans and guarantees between the two | Interest rate against currency and credit rating; guarantee fee; whether the loan is really equity |
Indian compliance
- Who is an associated enterprise. A holding of 26% or more, control of the board, dependence on loans or guarantees, or dependence on the other party’s intangibles or supplies. Common individual shareholders are enough.
- Accountant’s report. Filed electronically by 31 October following the end of the tax year, listing each international transaction, the method used and the arm’s length price. It was Form 3CEB under the 1962 Rules.
- Documentation. A transfer pricing study with functional analysis and benchmarking, in place by the due date of the report, where transactions exceed Rs 1 crore.
- Master file and country-by-country report for large groups, with their own thresholds and forms.
- Interest limitation. Interest paid to a non-resident associated enterprise above Rs 1 crore is deductible only up to 30% of EBITDA.
- Secondary adjustment. If a primary adjustment of more than Rs 1 crore is made or accepted, the excess money must be brought into India within 90 days, failing which interest is imputed each year, or a one-time additional tax of 18% plus surcharge is paid.
UAE compliance
The UAE rules follow the OECD guidelines. They cover related parties and also connected persons, such as owners and directors, so a salary or fee paid to an Indian promoter who is a director of the UAE company must itself be at market value to be deductible. A disclosure form is filed with the corporate tax return once related-party transactions cross the prescribed value. The master file and local file apply to larger businesses, but any taxpayer can be asked to support its pricing within 30 days of a request from the Federal Tax Authority. A Qualifying Free Zone Person must maintain documentation in all cases, because compliance is a condition of the 0% rate. See our UAE transfer pricing service.
Why the two files must agree
India and the UAE exchange information under their treaty. An Indian officer can ask for the UAE company’s accounts, employee list, lease and board minutes, and compare them with the functional analysis in the Indian study. A study that describes the UAE company as an entrepreneur bearing market risk will not survive if the UAE company has two employees and a flexi-desk. The same facts also feed the questions of whether the UAE company is managed from India, covered in POEM risk for a Dubai company, and whether it has a permanent establishment in India through people acting for it here.
Getting it right at the start
- Decide what the UAE company will actually do, and staff it to do that.
- Choose the pricing model that fits those functions: commission agent, limited-risk distributor, cost-plus service provider or full-risk trader.
- Put intercompany agreements in place before the first transaction, and invoice in line with them.
- Benchmark once, then refresh the comparables every year and the full search every three years.
- Consider the Indian safe harbour rules for eligible service, loan and guarantee transactions, or an advance pricing agreement where the amounts justify it. An agreement can cover five future years and be rolled back for four.
- Reconcile year-end results to the policy and true up within the year, not after it.
The UAE-side tax rules are covered in UAE corporate tax for Indian businesses. Our India transfer pricing team prepares studies and accountant’s reports, and our UAE team prepares the matching disclosure and local file, so both authorities read the same story.