Complete Guide to JAFZA Transfer Pricing & Corporate Tax in 2025
Zero tax doesn’t mean zero rules.
That’s the reality for businesses in JAFZA in 2025.
JAFZA remains one of the world’s most strategic trade zones — well-positioned, business-friendly, and still offering 0% corporate tax for qualifying companies. But that doesn’t mean it’s hands-off anymore.
The UAE’s corporate tax regime is now live. And with it comes a new layer of compliance: transfer pricing in the UAE.
This isn’t just about rates. It’s about how your group transactions are priced, documented, and disclosed — even if you’re not paying any tax.
Still wondering:
“If I owe 0%, why should transfer pricing matter?”
Here’s the reality: You’re not exempt.
Even at 0%, the Federal Tax Authority (FTA) expects clear records, arm’s length pricing, and clean disclosures.
The rules apply. The audits are real. The risk is high if you’re not ready.
If you’re running a JAFZA business, understanding how this works is no longer optional. It’s essential.
So what exactly are your obligations? And how do JAFZA companies navigate this without tripping over new UAE transfer pricing regulations?
Let’s break it down.
Legal Framework for JAFZA Entities
If your company is based in JAFZA, you are automatically within the scope of the UAE Corporate Tax Law, even if you’re currently paying 0% tax. This is a common point of confusion, so let’s break it down step by step.
The Law That Started It All
The UAE Corporate Tax Law, officially known as Federal Decree-Law No. 47 of 2022, applies to all businesses in the UAE, including free zone companies.
However, the law allows certain free zone businesses to pay 0% tax, but only if they meet specific conditions. These businesses are called “Qualifying Free Zone Persons” (QFZPs).
So, you’re not automatically exempt. You must qualify for the 0% rate.
What Does It Take to Be a Qualifying Free Zone Person (QFZP)?
According to Ministerial Decision No. 139 of 2023, a JAFZA company can be treated as a QFZP if it meets all of the following:
- It earns “Qualifying Income”
- Income from doing business with companies outside the UAE, or
- Income from transactions with other free zone businesses (in specific circumstances), or
- Certain regulated activities (like warehousing, fund management, or logistics)
- It has enough substance in the UAE
- This means your business must have real operations
- You need employees, office space, and actual activity in the free zone.
- It prepares and keeps audited financial statements
- It does not conduct too much “non-qualifying” activity, such as selling directly to UAE mainland customers (unless done through a mainland branch, which is taxed at 9%).
If any one of these conditions is not met, your business loses QFZP status and becomes subject to the regular 9% corporate tax on all taxable income.
Where Do These Rules Come From?
Let’s connect the dots to the actual documents:
| Law / Decision | What it Covers |
|---|---|
| Federal Decree-Law No. 47 of 2022 | The main corporate tax law covers who pays tax, how much, and when |
| Ministerial Decision No. 139 of 2023 | Defines “Qualifying Income” for free zone companies |
| Ministerial Decision No. 97 of 2023 | Explains what income is exempt from tax (e.g., dividends, capital gains) |
| Cabinet Decision No. 55 of 2023 | Lays out recordkeeping rules, accounting methods, and financial thresholds |
Together, these documents form the legal backbone for how corporate tax and exemptions apply to JAFZA companies.
Transfer Pricing Rules Also Apply — Even at 0%
Here’s where many JAFZA companies are getting caught off guard.
Even if your income is 100% qualifying and you pay 0% corporate tax, the JAFZA Transfer Pricing (TP) rules under Article 34 of the Tax Law still apply to you.
This means:
- If your company does business with related parties (like a parent company abroad, or other group entities),
- You must price those transactions fairly, as if they happened between unrelated parties,
- And you must keep proper documentation to prove that.
Why? Because the tax authorities want to make sure companies aren’t shifting profits or undercharging/overcharging group companies to avoid tax.
So yes, JAFZA transfer pricing compliance is mandatory, even if you’re at 0%.
Understanding Qualifying Free Zone Person (QFZP) Status
If your company is in JAFZA, you may be able to pay 0% corporate tax. But only if you qualify.
That’s where Qualifying Free Zone Person (QFZP) status comes in.
This status is not automatic. It comes with conditions. And if you don’t meet them, even once, you lose the 0% rate and get taxed at 9% like everyone else.
Let’s break down what QFZP means, how to get it, and how to keep it.
What Is a QFZP?
A QFZP is a company registered in a UAE free zone, like JAFZA, that qualifies for special tax treatment. The UAE Corporate Tax Law says that a QFZP pays:
- 0% tax on “qualifying income”
- 9% tax on “non-qualifying income”
The key point is that you must meet certain legal and operational conditions to be treated as a QFZP. If you don’t, your full income may be taxed at 9%.
What Counts as “Qualifying Income”?
The law splits income into two types:
- Qualifying Income (taxed at 0%)
- Income from selling goods or services to customers outside the UAE
- Certain income from other free zone businesses
- Some regulated activities (like logistics, fund management, or holding companies)
- Income from selling goods or services to customers outside the UAE
- Non-Qualifying Income (taxed at 9%)
- Sales made directly to UAE mainland customers (unless through a mainland branch)
- Unapproved activities not on the list of “qualifying activities”
- Income where the other party is related and outside the rules
- Sales made directly to UAE mainland customers (unless through a mainland branch)
If you earn both types of income, you must keep them clearly separated in your accounting. If you don’t, the FTA may tax your entire income at 9%, even if most of it should be 0%.
The AED 375,000 Threshold
The first AED 375,000 of your total taxable income is not taxed; this applies to all UAE businesses.
But this threshold doesn’t protect you if you fail to qualify for 0%. If you’re not a QFZP, your profit above AED 375,000 is taxed at 9%, and you won’t get the 0% rate on anything.
What You Need to Qualify
To get and keep QFZP status, your company must:
- Earn qualifying income (as explained above)
- Have real business operations in the free zone — not just a license
- Have people, premises, and expenses that match what you do
- Prepare audited financial statements each year
- Elect QFZP status in your tax return (this is a formal step)
- Keep separate records for different types of income
If you fail any one of these, the FTA can cancel your QFZP status for that year. And once it’s gone, you can’t get it back mid-year.
Common Mistakes That Cost You the 0%
Some businesses lose QFZP status without realizing it. These are the mistakes to avoid:
- Selling to UAE mainland customers directly from a free zone company, this is non-qualifying income.
- Not separating qualifying and non-qualifying income, the FTA might treat everything as taxable.
- Forgetting to check the QFZP box in the tax return, without it, you’re taxed at 9% by default.
- Skipping audited financials is a legal requirement. No audit means no 0% tax benefit.
- Having no real presence, the FTA checks if your company exists beyond paper.
Losing QFZP Status Has a Serious Impact
If you lose your QFZP status:
- Your entire income, not just the non-qualifying part, is taxed at 9%
- You can’t re-qualify until the next financial year
- You could trigger group-level tax issues if your structure relies on that 0% rate
Transfer Pricing Applicability to JAFZA
Many JAFZA companies assume that if they qualify for 0% tax, UAE transfer pricing regulations don’t apply.
That’s incorrect.
The UAE transfer pricing regulations apply to all businesses, including free zone companies and those that pay no tax. This is confirmed by the Federal Tax Authority (FTA) in its Transfer Pricing Guide.
The law is not about how much tax you pay. It’s about how fairly you price your transactions with related parties.
When Does Transfer Pricing Apply?
If your company does business with related parties or connected persons, UAE transfer pricing regulations apply.
Related parties can include:
- A parent company or subsidiary
- Another company in the same group
- A company controlled by the same shareholders
- A director, shareholder, or close relative doing business with the company
These are called controlled transactions. The pricing for these deals must be set as if the parties were independent. This is called the arm’s length principle.
Key Thresholds You Should Know
JAFZA Transfer pricing rules apply to everyone, but some requirements depend on the size of your business and your transactions.
Here’s what you need to check:
- If your UAE group has an annual turnover above AED 200 million, or
- If your total related-party transactions exceed AED 50 million in a tax year
In either case, you must prepare two documents:
- A Master File — covering the global group’s structure, functions, and pricing policies
- A Local File — covering your UAE entity’s related-party transactions
These are not optional once you cross the thresholds.
Disclosure Is Mandatory, even at 0%
Even if you don’t cross the thresholds, you still need to complete a Transfer Pricing Disclosure Form. This form is submitted with your corporate tax return.
It asks for:
- A list of related parties
- The types and value of transactions
- Whether you prepared a Master File and a Local File
- The methods you used to price your transactions
This applies to all businesses that have related-party dealings, including Qualifying Free Zone Persons (QFZPs).
Connected Person Rules
There’s another threshold to keep in mind. If you pay a connected person (such as an owner, shareholder, or relative) more than AED 500,000 in a year, you must disclose it in a separate schedule.
This includes salaries, rent, consulting fees, and similar payments. These payments also need to be at market value.
Common Misconceptions
Here’s what many businesses get wrong:
- Thinking 0% tax means exemption from transfer pricing. It doesn’t. The law still applies.
- Believing small or informal group transactions won’t be noticed. They will, and must be reported.
- Assuming that UAE transfer pricing regulations are only for large multinational companies. It’s not. Many SMEs are caught by these rules.
Why It Matters
The FTA doesn’t just want to know your profits. It wants to know how you got there.
If your group deals aren’t priced properly, or if you don’t disclose them, you risk:
- Penalties for non-compliance
- Audits and investigations
- Losing QFZP status
- A 9% tax on your full income
Transfer pricing is now a permanent part of doing business in the UAE, including in free zones. The tax rate might be zero, but the rules are not.
Controlled Transactions Common in JAFZA
JAFZA Transfer pricing is not just a paperwork issue. It starts with the actual transactions your company does, especially with related companies inside or outside the UAE.
These are called controlled transactions. And in JAFZA, they’re common.
Many companies in this zone operate as part of larger regional or international groups. That means trade, logistics, shared costs, and intellectual property often flow across group lines.
Here’s a breakdown of the most frequent controlled transactions and how UAE transfer pricing regulations apply.
1. Import and Export with Foreign Affiliates
Many JAFZA companies import raw materials or finished goods from group companies abroad, then re-export them.
These are related-party transactions. You must ensure the pricing used for buying or selling is set at arm’s length, as if the parties were unrelated.
Why it matters: If prices are too low or too high, profits may shift unfairly between jurisdictions. That’s exactly what UAE transfer pricing regulations are designed to prevent.
2. Resale to UAE Mainland Customers
Some JAFZA companies buy goods from foreign affiliates and then resell them to mainland UAE customers.
If the supply chain includes related parties, all steps in the chain need to be priced properly.
Note: If you sell to the UAE mainland without using a branch, that income becomes non-qualifying and taxable at 9%. But the pricing of each step must still follow UAE transfer pricing regulations, especially if your supplier is a related party.
3. Shared Services: HR, IT, Finance
It’s common for group companies to centralize admin functions. For example:
- One company handles payroll and hiring for the group
- A regional head office provides IT infrastructure
- Finance teams are shared between subsidiaries
If your JAFZA company receives these services or provides them, you must charge or pay a fair, arm’s length fee. That usually means applying a cost-plus method, with markup based on what third parties would charge.
This must also be disclosed in your Transfer Pricing Disclosure Form.
4. Warehousing and Logistics Services
JAFZA businesses often operate group-level warehousing or supply chain hubs.
If one company uses another’s warehouse, picks and packs goods, or arranges transport, that’s a service. And that service needs a charge.
The fee must reflect market rates. Free or underpriced warehousing between group companies raises red flags under UAE transfer pricing regulations.
5. Use of Intellectual Property and Royalties
Some JAFZA entities hold trademarks or license rights from a group parent.
If you use a group of Intellectual Property — a brand name, software license, or product design, you must pay a royalty or license fee. And that rate needs to be justified.
Royalties are high-risk from a transfer pricing perspective. The FTA may request transfer pricing benchmark studies or documentation to prove the rate is reasonable.
Why This Matters
The FTA is not just looking at your tax rate; it’s looking at how your group operates. If money or services flow between group companies, you must show:
- What was received and by whom
- Who paid what and to whom
- How was the price set
- Why was the pricing fair
Even if you’re a QFZP at 0%, these rules still apply.
Applying Transfer Pricing Methods to JAFZA Entities
Knowing the rules is one thing. Applying them correctly is another.
In JAFZA, where many businesses operate within multinational groups, the choice of Transfer Pricing (TP) method matters. The method you pick must reflect your actual function and risk. It also needs to be defendable.
The UAE Transfer Pricing Guide lists five accepted methods. But not all are equal in practice. Some are used more frequently than others, especially in free zone setups like JAFZA.
Let’s break it down.
Common TP Methods for JAFZA Companies
Here are the three most relevant methods for businesses operating in JAFZA:
1. Transactional Net Margin Method (TNMM)
Best for: Trading entities and distributors
TNMM is the most commonly used method for JAFZA companies that buy and sell goods, especially when pricing can’t be compared directly. It looks at your net profit margin against similar companies performing similar functions.
Example:
A JAFZA-based company imports electronics from its parent in Europe and resells them regionally. There’s no exact market price to compare the imports to. TNMM works well here by comparing the distributor’s margin against independent benchmarks.
2. Cost-Plus Method
Best for: Logistics providers, warehousing, and shared services
This method adds a standard markup to costs. It’s ideal when one entity provides routine services or support to others in the group.
Example:
A JAFZA company runs a warehouse used by other affiliates. It charges each one based on actual storage costs, plus a markup of, say, 5%–10%, depending on the service.
This method works best when the provider takes low risk and performs limited functions.
3. Comparable Uncontrolled Price (CUP) Method
Best for: Royalty payments, licensing, or straightforward goods trading
CUP compares the price charged between related parties to the price charged between unrelated ones. It’s simple, but only works if you have solid comparable data.
Example:
If your JAFZA entity licenses a trademark from a parent company, and the same trademark is licensed to third parties, CUP can be used to test if the internal rate is fair.
But usable third-party data is often hard to find, so while CUP is ideal in theory, it’s not always practical.
Choosing the Right Method
There’s no one-size-fits-all. Your choice depends on:
- The functions your JAFZA company performs
- The risks it takes on
- Whether there are comparable transactions or market data
- The type of relationship with the related party
Illustrative Benchmarking Example
Let’s say your JAFZA company resells industrial equipment sourced from a group company.
You choose TNMM to test whether your net margin is in line with the market. Here’s a simple benchmark analysis:Your JAFZA entity’s margin: 4.1%
| Company | Function | Net Margin (%) |
|---|---|---|
| Company A | Independent trader | 3.5% |
| Company B | Regional distributor | 4.2% |
| Company C | Equipment reseller | 3.9% |
Since your margin is within the range of the comparables (3.5%–4.2%), the pricing is considered to be at arm’s length.
That’s how transfer pricing benchmarks support your Transfer Pricing method.
Why This Matters
Transfer Pricing documentation isn’t just about compliance. It’s your defense.
The FTA expects you to:
- Select the method that best fits your facts
- Apply it consistently
- Support it with transfer pricing benchmarks or internal data
Using the wrong method or applying the right one incorrectly can lead to adjustments, penalties, and disputes.
Therefore, for accurate benchmarking and method selection, many businesses rely on professional transfer pricing services to ensure compliance and reduce audit risk in JAFZA.
Documentation Requirements & Filing Timeline
Transfer pricing compliance doesn’t stop at picking the right method. You also need to document everything and file it on time through the EmaraTax portal.
Even if your company is based in JAFZA and qualifies for 0% corporate tax, transfer pricing documentation and disclosure are still required.
Let’s break it down.
The Three Key Documentation Requirements
Here are the main documents the UAE Transfer Pricing regime requires:
- Transfer Pricing Disclosure Form
- Must be filed with the Corporate Tax Return
- Mandatory for any business that has related-party or connected person transactions, regardless of size
- Lists all related parties, transaction values, and methods used
- Must be filed with the Corporate Tax Return
- Local File
- Contains a detailed analysis of your UAE entity’s transactions
- Includes functional analysis, contracts, benchmarking, and method application
- Required if:
- Your UAE consolidated group revenue exceeds AED 3.15 billion, and
- Your total related-party transactions exceeded AED 50 million during the tax year
- Your UAE consolidated group revenue exceeds AED 3.15 billion, and
- Contains a detailed analysis of your UAE entity’s transactions
- Master File
- Provides an overview of the entire multinational group
- Includes group structure, global pricing policies, IP ownership, and financing
- Required under the same thresholds as the Local File
- Provides an overview of the entire multinational group
Note: The Local File and Master File must be prepared and ready, even if they’re not submitted right away. The FTA can request them at any time.
Filing Timeline
Your company’s Corporate Tax Return and Transfer Pricing Disclosure Form must be filed within 9 months after the end of your financial year.
If your financial year ends on 31 December 2024:
- Corporate Tax Return + TP Disclosure Form → Due by 30 September 2025
- Local and Master Files → Must be ready by the same date
These timelines are strict. Late filing can trigger penalties.
EmaraTax Portal: What You Need to Know
The FTA’s EmaraTax platform is the central system for filing both your Corporate Tax Return and the Transfer Pricing Disclosure.
Key features to be aware of:
- Auto-populated fields based on previous submissions and license data
- Drop-downs for selecting related parties and transaction types
- Mandatory fields for method selection and arm’s length confirmation
- Elections must be made during return filing (e.g., choosing QFZP status)
- Transaction value schedules must match what’s in your financials
This system leaves little room for error. Everything you submit is cross-checked by logic rules.
Common Mistakes to Avoid
Many companies make the same filing errors. Here are the ones that can cost you:
- Failing to check the QFZP election box — this defaults you to full 9% tax
- Mismatched transaction values — if your TP form doesn’t align with your return or financials, it raises a red flag
- Leaving out connected persons — even if payments are small, some still require disclosure
- Missing the deadline — 9 months might seem long, but benchmarking and file prep takes time
- Assuming 0% tax means no documentation — even QFZPs must disclose transactions and justify pricing
Why This Matters
The FTA is building a data-driven audit system. If your filings don’t match, or if documentation is missing, your company could be selected for review.
And if you can’t produce your Master File or Local File when requested?
That’s a compliance failure, and it comes with consequences.
Common Risks & Penalties
JAFZA Transfer pricing compliance isn’t just about checking boxes. If it’s done wrong — or not done at all — the consequences are real.
The Federal Tax Authority (FTA) has made it clear: they are watching. And they know what to look for.
Let’s go over the key risks, audit triggers, and penalties that JAFZA companies need to avoid.
Risk 1: Improper Benchmarking
Benchmarking is not optional — it’s what backs up your pricing.
The most common mistake? Using weak or irrelevant comparables. That includes:
- Comparing against unrelated industries
- Ignoring regional market differences
- Using outdated or unaudited financial data
FTA expects clean, consistent, and localised benchmarks. Anything less, and they may disregard your method entirely.
Risk 2: Misclassifying Related Parties
Another frequent error: failing to declare or correctly label related parties and connected persons.
Examples:
- Omitting sister companies or entities under common ownership
- Failing to disclose transactions with shareholders or board members
- Treating connected-person salaries or perks as routine expenses
FTA guidance — and audit experience — shows that misclassification is one of the top red flags.
Risk 3: Disclosure Form Errors
The Transfer Pricing Disclosure Form is a key document. Mistakes here are costly.
FTA is flagging forms that:
- Omit required transactions
- Don’t match the financial statements
- Fail to declare elections (like QFZP status)
- Leave out payment details to connected persons
Errors, inconsistencies, or vague answers can lead to audits — or worse, penalties.
Risk 4: Excessive Service Charges
Service transactions within groups are a major audit focus.
FTA is reviewing:
- Shared service fees with no clear cost basis
- Management fees that seem inflated
- Group support services with no supporting documentation
If you’re charging or paying for services, you need proof of benefit, cost breakdowns, and markup rationale. If it’s not real, or not priced fairly, the FTA can adjust or disallow it.
Risk 5: Below-Market Margins
If your JAFZA company is earning margins that fall below the arm’s length range — especially if you’re a distributor or service provider — expect scrutiny.
FTA may argue:
- You’re shifting profits out of the UAE
- You’ve underreported taxable income
- You’ve incorrectly applied the TP method
And they can re-calculate your taxable profit accordingly.
What Are the Penalties?
Here’s what’s on the line:
- Failure to submit the TP Disclosure Form: AED 10,000
- Failure to provide TP documentation on request: AED 20,000–30,000
- Inaccurate returns or misleading information: Higher penalties or audits
- Transfer pricing adjustments by FTA: Additional 9% tax + interest + penalties
- Loss of QFZP status: Full-year corporate tax at 9%
FTA is building a data-driven compliance system. Once you’re flagged, it’s hard to undo.
JAFZA Holding Companies and TP Exposure
JAFZA holding companies are often used to centralise ownership, IP, financing, or management functions across group entities. But that setup brings higher transfer pricing (TP) exposure, and, increasingly, global tax scrutiny.
As the UAE aligns with OECD Pillar Two and global minimum tax standards, JAFZA holding structures face new compliance risks. If your group crosses key thresholds, transfer pricing is no longer just a local issue; it becomes a global one.
Why JAFZA Holding Companies Attract TP Scrutiny
Holding companies in JAFZA are often used for:
- Owning intellectual property (IP) and licensing it to operating entities
- Providing intercompany financing (loans, guarantees, cash pooling)
- Charging group-wide management or admin fees
- Consolidating treasury, legal, HR, or strategic functions
All these involve controlled transactions, and all are under FTA and OECD watch.
The key question: Are these activities real and active, or just paper functions?
If the FTA sees a holding company with no substance, yet collecting large fees or royalties, it can challenge the entire arrangement, and apply 9% tax or TP adjustments.
Master File, CbCR & Group Reporting Thresholds
If your UAE consolidated revenue exceeds AED 3.15 billion, your group may be subject to:
- Master File: Describes the global business, IP, financing, and tax policies
- Country-by-Country Reporting (CbCR): Discloses where profits, tax, and employees are located
- Local File: Discloses transaction-level TP details for UAE entities
Holding companies must be ready to justify their functions, assets, and risk, not just their revenue streams. Otherwise, intercompany income (like interest or royalties) may be recharacterized.
Pillar Two and the Global Minimum Tax
The UAE is preparing to implement Pillar Two under the OECD’s GloBE (Global Anti-Base Erosion) framework. That means:
- Multinational groups with revenue over EUR 750 million may be subject to a 15% minimum effective tax
- Low-tax income (including 0% income in free zones) could trigger top-up taxes in other jurisdictions
- JAFZA holding companies — especially IP owners and finance hubs — are now in scope
Even if you qualify as a QFZP in the UAE, your group’s parent or intermediate entities may owe tax in other jurisdictions due to GloBE rules.
GloBE Readiness: What JAFZA Holding Entities Need to Do
- Identify high-risk income streams
- IP licensing, group loans, management fees, and any 0% income with minimal substance
- IP licensing, group loans, management fees, and any 0% income with minimal substance
- Assess substance vs. form
- Do you have local employees, decision-makers, and real economic activity?
- Do you have local employees, decision-makers, and real economic activity?
- Align documentation with Pillar Two expectations
- Update Master Files and Local Files to reflect actual functions and risk
- Make sure intercompany payments are benchmarked and defendable
- Update Master Files and Local Files to reflect actual functions and risk
- Prepare for IPE (International Permanent Establishment) elections
- Some holding companies may need to elect for certain reporting or tax treatments under GloBE
- Some holding companies may need to elect for certain reporting or tax treatments under GloBE
- Coordinate with the group’s global tax team
- TP decisions made in JAFZA can impact group-level top-up tax exposure
JAFZA Holding Companies and TP Exposure
JAFZA holding companies play a central role in many UAE-based group structures. They often control IP, issue intercompany loans, or manage regional operations from a low-tax platform.
That structure makes sense commercially. But it also triggers higher transfer pricing (TP) and global tax risk.
Common Holding Company Activities Under Scrutiny
The following activities, when done between group entities, fall directly under TP rules:
- IP licensing: Charging royalties to operating companies
- Intercompany financing: Lending, guarantees, and treasury support
- Centralised services: Group-level HR, finance, legal, IT or leadership functions
These aren’t passive activities. They require substance and fair pricing.
If your JAFZA entity receives large income from these functions but shows limited operations or people on the ground, the Federal Tax Authority (FTA) will ask questions.
TP Documentation Risk: Local File, Master File, and CbCR
If your UAE group’s consolidated revenue exceeds AED 3.15 billion, you face full-scale documentation rules:
- Local File: Detailed analysis of transactions involving UAE entities
- Master File: Global overview of your group’s business, functions, and transfer pricing
- Country-by-Country Report (CbCR): Tax, profit, and headcount by jurisdiction
For holding companies, these reports must justify the allocation of profits. If the UAE entity receives high income but performs few functions, the group could face reallocation or tax adjustments in other countries.
Global Minimum Tax: Enter Pillar Two
The 0% tax advantage for holding companies won’t last forever.
The OECD’s Pillar Two rules, now being adopted by the UAE, will introduce a 15% global minimum tax for groups with annual revenue over EUR 750 million.
This changes the game for JAFZA structures.
Even if your holding company is a Qualifying Free Zone Person (QFZP) with 0% tax in the UAE, top-up tax could be charged elsewhere if:
- The entity earns passive income (like IP or interest)
- It lacks local substance
- The group’s Effective Tax Rate (ETR) in the UAE falls below 15% under GloBE rules
And this tax won’t hit just the holding company, it may hit the ultimate parent, intermediate parent, or a designated local entity.
Preparing for GloBE and IPE Exposure
Multinational groups need to be ready.
Here’s what JAFZA holding entities should do now:
- Map out all controlled transactions: Royalty flows, loans, service fees, cost-sharing
- Review legal and operational substance: How many people are on payroll? Who makes decisions? Where is IP developed and managed?
- Ensure documentation aligns: Master File and Local File must reflect actual roles, not just tax positioning
- Benchmark everything: IP income, interest rates, service markups, all must be tested and defensible
- Coordinate with group tax teams: GloBE rules require global coordination. TP missteps in JAFZA can cause exposure at the parent level
ESR vs TP in JAFZA – What’s the Difference?
Many JAFZA companies think that if they comply with Economic Substance Regulations (ESR), they’ve also ticked the Transfer Pricing (TP) box.
That’s a mistake.
The two regimes are separate, apply in different situations, and require different actions.
When ESR Applies
ESR applies to specific business activities carried out in the UAE. These include:
- Holding company activities
- Headquarters or management services
- IP ownership and licensing
- Distribution and service centre operations
- Financing and leasing
- Shipping and fund management
If your company earns income from one of these Relevant Activities, you must:
- File an ESR Notification
- Submit an ESR Report
- Demonstrate adequate economic substance in the UAE — meaning staff, premises, and core decision-making
The focus of ESR is: Do you actually do business in the UAE, or are you just booking profits here?
When Transfer Pricing Applies
TP rules apply to any transaction with related parties or connected persons, regardless of your industry or activity type.
It doesn’t matter if you’re a service company, a warehouse, or a holding entity — if you’re transacting with related entities, TP applies.
You must:
- Disclose the transactions
- Choose and apply an arm’s length pricing method
- Benchmark your pricing
- Prepare and maintain a Local File and Master File (if thresholds are met)
The focus of TP is: Is your pricing fair, as if the parties were unrelated?
Key Differences
| Point | ESR | Transfer Pricing (TP) |
|---|---|---|
| What it covers | Specific income-generating business activities | Any transaction with related/connected parties |
| Who does it apply to | Companies engaged in “Relevant Activities” | All companies with controlled transactions |
| Test applied | Substance — people, premises, decision-making | Pricing — arm’s length, comparability |
| Main submission | ESR Report + Notification | TP Disclosure Form + Files |
| Thresholds | Based on activity and income | Based on group revenue & transaction size |
One Doesn’t Cover the Other
Just because your company meets ESR requirements, that does not mean your TP is compliant.
ESR only proves you have substance. It doesn’t prove your pricing is fair.
FTA and the Ministry of Finance treat both regimes separately. And both have their penalties.
Coordination Matters
That said, your ESR and TP disclosures must tell a consistent story.
For example:
- If you claim in ESR that your JAFZA entity manages IP, your TP file should show royalty income and explain how it’s priced.
- If your ESR says you employ finance staff, but your TP file shows zero service charges to affiliates, that’s a red flag.
Mismatch equals audit risk.
So your ESR team and TP team need to talk — especially when preparing disclosures and documentation.
Transfer Pricing Compliance Checklist for JAFZA Businesses (2025 Edition)
Transfer pricing is no longer a back-office task. For JAFZA entities, it’s now a core compliance requirement, with real tax and legal consequences if ignored.
Here’s a straightforward checklist to help your business stay fully compliant in 2025:
1. Corporate Tax Registration
- Ensure your JAFZA entity complies with the mandatory corporate tax registration in the UAE by completing the process through the EmaraTax portal.
- Even if your income is at 0%, registration is mandatory.
2. Confirm QFZP Eligibility and Monitor Income
- Check that your business qualifies as a Qualifying Free Zone Person (QFZP).
- Track your revenue streams closely — especially mainland transactions, passive income, or non-qualifying services.
- Make the QFZP election in your corporate tax return each year.
3. Identify Related and Connected Party Transactions
- Map out all controlled transactions — goods, services, IP, financing, management fees.
- Include payments to connected persons, such as owners, shareholders, and relatives.
- Keep this list updated and documented.
4. Conduct Benchmarking and Apply TP Methods
- Choose the most suitable TP method based on your function and risk.
- Run benchmarking studies annually, especially for key services, loans, and royalties.
- Document your logic — not just your numbers.
5. Prepare and File TP Documentation
- Submit the Transfer Pricing Disclosure Form along with your Corporate Tax Return.
- If your group revenue exceeds AED 3.15 billion, prepare a Local File and Master File.
- Make sure documentation is ready by the return deadline, even if not submitted.
6. Coordinate TP and ESR Submissions
- Ensure your ESR reports align with your TP disclosures.
- If ESR says you conduct HQ, IP, or finance activities, your TP file must reflect that — with pricing to match.
- Inconsistencies increase audit risk.
7. Use EmaraTax Correctly
- Ensure all elections, schedules, and declarations are accurate and complete.
- Avoid common mistakes:
- Leaving out related parties
- Failing to declare connected persons
- Mismatched transaction values
- Leaving out related parties
- Double-check every entry before submission.
8. Build Internal Controls
- Assign ownership of TP compliance within your team.
- Create an internal calendar for key deadlines.
- Keep records, contracts, and calculations organised and accessible.
Note: Consider engaging expert transfer pricing services to handle documentation, EmaraTax filings, and method reviews, especially if your transactions are complex or cross-border.
FAQs:
Common red flags include vague service descriptions, missing benchmarking, mismatches between TP and ESR filings, and unexplained below-market margins—especially for large related-party payments. These are serious risk indicators under UAE transfer pricing regulations.
Yes. The 0% rate only applies to qualifying income. Transfer pricing still applies, and incorrect pricing, disclosures, or documentation, regardless of your corporate tax registration, can trigger penalties, audits, or even the loss of QFZP status.
Warehousing markups should be benchmarked using the cost-plus method, supported by regional comparables. Under UAE transfer pricing regulations, the FTA expects clear cost breakdowns, risk-adjusted margins, and documentation, often prepared with help from professional transfer pricing services.
Yes. Intercompany loans, guarantees, and treasury arrangements must reflect commercial terms and actual credit risk. Under UAE transfer pricing regulations, proper benchmarking and documentation are essential to avoid audit challenges.
Yes. EmaraTax includes automated validation. If connected parties, elections, or figures don’t align, the system may reject your return during corporate tax registration filing or flag issues for review.
Failing to submit the schedule can lead to penalties, increased audit scrutiny, and even loss of QFZP status. It signals weak compliance, even if other filings are correct, and may raise questions about transparency in related-party dealings.
Yes. If the group crosses the EUR 750M threshold, CbCR still applies, even for passive entities. Many firms rely on transfer pricing services to coordinate disclosures.
ESR focuses on real UAE presence, staff, governance, and decision-making. TP, on the other hand, tests whether intercompany pricing reflects market value. Both apply, but address different risks under UAE transfer pricing regulations.
If non-qualifying income goes over AED 375,000, the company loses its 0% tax benefit. The full income becomes taxable at a rate of 9%, making this threshold a crucial line that businesses must closely monitor to maintain QFZP status.
No. Free Zone Persons are not eligible for Small Business Relief. Transfer pricing in UAE applies even to low-revenue entities that conduct related-party transactions.
Yes, if the director is a connected person. Their compensation must be reasonable and in line with market standards. This is typically achieved through a thorough benchmarking analysis in transfer pricing, supported by clear documentation to prevent compliance issues.
Start with the CUP method if available. Otherwise, TNMM with value justification works. This area of transfer pricing in UAE often requires strong documentation and comparables.
FTA expects a clear analysis of functions, assets, and risks. If margins are low, your functional story must hold up. Many businesses engage transfer pricing services for this.
FTA may deny deductions or apply 9% tax if support is weak. Each recharge must be documented and benchmarked according to UAE transfer pricing regulations.
If income from mainland and Free Zone activities isn’t properly ringfenced, the entity risks losing its QFZP status. Accurate documentation and support from professional transfer pricing services are critical to meet compliance and avoid misclassification under UAE tax rules.
Yes. If group thresholds are met or related-party transactions exist, documentation is required, even if one entity is dormant. This is standard under transfer pricing in UAE.
Economic rationale ensures the transfer pricing method matches how the business truly works—what it does, what risks it takes, and what value it adds. Without that alignment, tax authorities may reject the method and question the reported profits.
EmaraTax automatically cross-checks your entries. If figures in the tax return don’t match those in the transfer pricing schedules, the system may flag the return, delay submission, or prompt a follow-up from the Federal Tax Authority.
Fees must be linked to actual services, with clear cost structures and markups. Unsubstantiated charges carry audit risk—transfer pricing services can help you benchmark and document these.
Outdated benchmarking weakens your position. The FTA expects current, relevant data that reflects today’s market. Using old or irrelevant comparables can lead to adjustments, penalties, and reduced credibility during audits or reviews of your transfer pricing documentation.
References
- aasaid@mof.gov.ae. ‘Ministry of Finance Confirms Applicable Taxable Income Threshold for Corporate Tax Abu Dhabi, UAE’. Ministry of Finance – United Arab Emirates, 1 Feb. 2023, https://mof.gov.ae/ministry-of-finance-confirms-applicable-taxable-income-threshold-for-corporate-tax-abu-dhabi-uae/.
- Authority, Federal Tax. ‘Federal Tax Authority – United Arab Emirates’. Federal Tax Authority United Arab Emirates, https://tax.gov.ae//en/.
- Bot Verification. https://bcl.ae/corporate-tax-law-uae/#:~:text=CONNECTED%20PERSONS%20UNDER%20THE%20UAE%20TAX%20LAW%20INCLUDES&text=Kinship%20with%20Owner%2FDirector%2FOffice,marriage%2C%20adoption%2C%20or%20guardianship.
- Corporate Tax (CT). https://u.ae/en/information-and-services/finance-and-investment/taxation/corporate-tax.
- Determining Qualifying Income. https://tax.gov.ae/Datafolder/Files/Legislation/Cabinet%20Decision%20No.%20100%20of%202023%20on%20Determining%20Qualifying%20Income%20for%20the%20Qualifying%20Free%20Zone%20Person%20-%20for%20publishing.pdf.
- EmaraTax. https://u.ae/en/information-and-services/finance-and-investment/taxation/emaratax.
- Federal Decree-Law No. 47 of 2022. https://mof.gov.ae/wp-content/uploads/2022/12/Federal-Decree-Law-No.-47-of-2022-EN.pdf.
- Free Zone Persons. https://tax.gov.ae/Datafolder/Files/Guides/CT/Free%20Zone%20Persons%20-%2020%2005%202024%20final%20for%20GCD.pdf.
- Global Anti-Base Erosion Model Rules (Pillar Two). https://www.oecd.org/en/topics/sub-issues/global-minimum-tax/global-anti-base-erosion-model-rules-pillar-two.html.
- ‘Jebel Ali Free Zone’. Jebel Ali Free Zone (Jafza), https://www.jafza.ae/.
- Minimum Tax Implementation Handbook (Pillar Two). https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/global-minimum-tax/minimum-tax-implementation-handbook-pillar-two.pdf.
- Ministerial Decision No. 139 of 2023 R. https://mof.gov.ae/wp-content/uploads/2023/06/Ministerial-Decision-No.-139-of-2023-Regarding-Qualifying-Activities-and-Excluded-Activities.pdf.
- The Economic Substance Regulations. https://u.ae/en/information-and-services/finance-and-investment/taxation/the-economic-substance-regulations.
- TRANSFER PRICING APPLICATION OF THE ARM’S LENGTH PRINCIPLE . https://www.mira.gov.mv/Files/GetFile/ff5a98b8-d862-47c6-be59-3d19ed225e75.
