Private Equity Transfer Pricing in the UAE: Related-Party Debt, Fees & the Interest Cap (2026)

Private equity structures live inside the UAE's transfer-pricing rules: every related-party loan, fee and service must be arm's length under Articles 34–36 of the Corporate Tax Law. Interest deductions face two further caps — Article 30 limits net interest to 30% of EBITDA (with an AED 12 million de minimis), and Article 31 disallows interest on related-party loans used for dividends, capital returns or acquisitions unless no tax advantage was the main purpose. Documentation follows Ministerial Decision No. 97 of 2023.

This page is the transfer-pricing companion to our private equity fund tax guide. That page covers fund-level taxation; this one covers the plumbing — how the debt, fees and services between the entities in a PE structure are priced, capped and documented.

Articles 34 to 36 of Federal Decree-Law No. 47 of 2022 import the arm's length principle into UAE corporate tax: transactions and arrangements between Related Parties — and with Connected Persons — must reflect what independent parties would have agreed in comparable circumstances. For a private equity structure, that captures almost everything the entities do with each other: shareholder loans from the fund or parent to the acquisition SPV, management and monitoring fees, shared-service recharges, guarantees, secondments, and transfers of assets between portfolio companies.

Two features surprise newcomers. First, the rules are not cross-border-only: two UAE companies in the same group must still price intercompany dealings at arm's length. Second, the standard applies whether or not documentation thresholds are triggered — the thresholds decide what paperwork you keep, not whether the pricing must be right. The FTA's transfer-pricing guidance (tax.gov.ae) sets out the accepted methods, aligned with OECD principles.

Where PE structures most often fail the test

In practice, adjustments cluster around three items: shareholder loans priced at whatever rate the model needed (rather than what a lender would charge the SPV standalone), management fees set as a round percentage of revenue with no benefit analysis, and guarantees given free of charge where an independent guarantor would have charged a fee. Each of these is fixable at the structuring stage and expensive to fix at audit.

Leverage is the engine of private equity, and related-party debt is its most examined component. A shareholder loan must survive two separate transfer-pricing questions: would an independent lender have lent on these terms (the quantum and covenants), and at what rate (the interest pricing). Both are tested against comparables — the SPV's standalone creditworthiness, not the fund's — because an independent lender prices the borrower in front of it.

The practical discipline: set the rate by reference to what comparable borrowers pay for comparable debt — credit-rating-based pricing, comparable bond or loan spreads, adjusted for currency, term, seniority and security. Document the analysis when the loan is made, not when the FTA asks. Intercompany loan agreements should look like loan agreements: defined term, repayment schedule, covenants, events of default. A repayable-on-demand advance with no paperwork invites recharacterisation as equity — and equity does not generate deductible interest at all.

Debt vs equity characterisation

Before any cap is computed, the instrument must be debt. Thin capitalisation alone does not recharacterise a loan under UAE law, but an advance with no fixed repayment terms, subordinated to everything, and serviced only when cash permits looks like equity to any tax authority. If the instrument is equity, the 'interest' is a non-deductible distribution. Get the legal form right first; the Article 30 and 31 analysis only matters for genuine debt.

Article 30 — the General Interest Deduction Limitation Rule — caps deductible net interest expenditure at 30% of the taxpayer's accounting EBITDA for the tax period, excluding any exempt income under Article 22. 'Net interest expenditure' means interest expense for the period (including amounts carried forward from earlier disallowances) minus taxable interest income for the same period. The EBITDA is accounting EBITDA — the starting point is the financial statements, not a tax-adjusted figure — with exempt income stripped out.

Three reliefs soften the rule. First, the de minimis: where net interest expenditure does not exceed AED 12 million, the limitation does not apply at all (Ministerial Decision No. 126 of 2023). Many mid-market SPVs live entirely inside this safe harbour. Second, disallowed interest is not lost — it carries forward for ten tax periods, usable when EBITDA headroom allows. Third, banks, insurance providers and natural persons are outside the rule. Interest disallowed under any other provision (including Article 31) is excluded from the Article 30 computation — the caps apply in sequence, not simultaneously.

What counts as interest

Broadly: any amount accrued or paid for the use of money or credit — including discounts, premiums, Islamic finance profit economically equivalent to interest, guarantee fees, arrangement fees and other finance-raising costs, but excluding principal repayments. Structure fees accordingly: a fee characterised as interest enters the cap computation; the label in the agreement does not control the tax character.

Article 31 — the Specific Interest Deduction Limitation Rule — is the targeted anti-avoidance provision for related-party debt. It disallows interest on a loan obtained, directly or indirectly, from a Related Party where the loan relates to any of four transactions: a dividend or profit distribution to a Related Party; a redemption, repurchase, reduction or return of share capital to a Related Party; a capital contribution to a Related Party; or the acquisition of an ownership interest in a person who is or becomes a Related Party after the acquisition. The last limb is the one that bites acquisition SPVs: debt-funded buyouts from related sellers.

The escape hatch is the main-purpose test: Article 31 does not apply where the taxpayer demonstrates that the main purpose of obtaining the loan and carrying out the transaction was not to obtain a corporate tax advantage. And no tax advantage is deemed to arise where the related-party recipient is subject to corporate tax (or a similar foreign tax) of at least 9% on the interest income — the 9% recipient test. Document the commercial rationale for the financing contemporaneously; a post-audit reconstruction of 'commercial purpose' carries little weight.

Dividend recapitalisations: the classic Article 31 case

A portfolio company borrows from its parent to fund a dividend back to that parent: deductible interest in the company, dividend out — often into the participation exemption. Article 31 was written for exactly this pattern. Unless the main-purpose test is met (genuine third-party refinancing economics, for example), the interest is disallowed. Structure dividend recaps with Article 31 as the first question, not an afterthought.

An acquisition SPV borrows AED 175,000,000 from its parent fund vehicle at 8% to acquire a target. Annual interest: 175,000,000 × 8% = AED 14,000,000. The SPV's accounting EBITDA for the period is AED 20,000,000 and it has no interest income.

Step 1 — Article 31: the loan funded the acquisition of a company that is now a related party. Assume the main-purpose test is satisfied on these facts (genuine third-party-style acquisition financing, documented commercial rationale), so Article 31 does not disallow — but note that without that conclusion, the entire AED 14,000,000 would be non-deductible here and Article 30 would never be reached.

Step 2 — Article 30: net interest expenditure is AED 14,000,000, which exceeds the AED 12,000,000 de minimis, so the cap applies. The cap is 30% × 20,000,000 = AED 6,000,000. Deductible interest: AED 6,000,000. Disallowed: 14,000,000 − 6,000,000 = AED 8,000,000, carried forward for up to ten tax periods. The disallowance increases taxable income by AED 8,000,000, costing 9% × 8,000,000 = AED 720,000 of additional corporate tax this period.

The structuring lesson: at 8% on AED 175 million against AED 20 million of EBITDA, less than half the coupon is deductible. Either the debt quantum, the rate, or the EBITDA trajectory has to change — or the carry-forward must genuinely be usable within ten periods.

Management, monitoring and transaction fees flowing between the manager, the fund and portfolio companies are services for transfer-pricing purposes, and services need a benefit test plus a pricing method. The benefit test asks: did the recipient actually receive a service an independent party would have paid for? Routine shareholder activities — group oversight, investor reporting, capital allocation decisions — generally fail this test and are not chargeable. Genuine operational support — procurement, IT, HR, treasury — can pass, but must be evidenced: service descriptions, time records, and recipient-side acknowledgement.

Pricing follows the transfer-pricing methods in our service guide: comparable uncontrolled prices where a market rate exists (e.g. seconded staff rates), cost-plus for routine support services (cost base plus an arm's length mark-up supported by comparables), or a transactional net margin method for integrated service providers. The method must match the function's value — a cost-plus 5% on strategic advisory work that an independent consultant would bill at multiples of cost will not survive scrutiny.

The flat-percentage fee problem

A management fee set as a fixed percentage of revenue or EBITDA, with no link to costs incurred or services rendered, is the most commonly adjusted item in service-fee audits. If the commercial agreement uses a percentage, still prepare the transfer-pricing support showing the resulting amount is arm's length — the contract formula and the tax justification are two different documents.

Documentation thresholds under Ministerial Decision No. 97 of 2023: a taxable person must maintain a Master File and a Local File where it is part of a multinational group with consolidated revenue of AED 3,150,000,000 or more, or where its own revenue is AED 200,000,000 or more in the tax period. The files must be prepared contemporaneously — meaning alongside the transactions, not reconstructed for the audit — and submitted to the FTA within 30 days of a request. Our transfer-pricing documentation guide details the contents.

Separately, a transfer-pricing disclosure form accompanies the corporate tax return for taxpayers with related-party or connected-person transactions, with materiality thresholds determining how much detail each schedule requires. Below the Master/Local File thresholds, the arm's length standard still applies in full — maintain proportionate evidence: agreements, pricing calculations, benefit analyses and the rationale for the chosen method. 'No file required' is not 'no evidence required'.

What the Local File must cover

The Local File focuses on the UAE entity's controlled transactions — with particular attention to transactions with non-residents, exempt persons, persons who elected Small Business Relief, and persons taxed at a different rate. In a PE structure, that means the shareholder loan, the management fee, and any cross-border service flows get the full treatment. See corporate tax transfer pricing for the wider framework.

The acquisition SPV is where every rule in this guide converges, so it deserves its own checklist:

1. Characterise the funding. Genuine debt with loan-grade documentation — term, covenants, repayment — before any cap is computed.

2. Price the rate. Benchmark against the SPV's standalone creditworthiness, not the fund's. Document at inception.

3. Clear Article 31. Related-party acquisition debt is disallowed unless the main-purpose test is met or the 9% recipient test applies. Third-party bank debt avoids Article 31 but not Article 30.

4. Model Article 30 across the hold period. The 30%-of-EBITDA cap bites hardest in early years when EBITDA is lowest and debt highest. Project the disallowance and the ten-year carry-forward absorption year by year.

5. Consider the debt quantum. Every dirham of debt above the deductible threshold is equity for tax purposes in economic effect — it generates no shield. Size debt to the shield, not just to the returns model.

6. Mind the exit. Disallowed interest carried forward dies with the SPV if it is liquidated with unused capacity — factor the stranded shield into exit pricing.

Debt push-down

Pushing acquisition debt down into the operating company (via merger or intercompany loan) moves the interest to where the EBITDA is — improving the Article 30 headroom — but each step must itself be arm's length and clear Article 31. A push-down structured purely to manufacture deductions is exactly what the main-purpose test polices.

A Qualifying Investment Fund is exempt from corporate tax — but the transfer-pricing rules apply to taxable persons, and a PE structure is full of them: the management company, taxable holding SPVs, and portfolio companies that are themselves taxable. The fund's exemption does not give those entities permission to misprice their dealings with each other or with the fund.

Three practical consequences. First, the manager's fee from a related fund must be arm's length even though the fund pays no tax on its side — the manager's deduction and income are tested on their own. Second, interest-free or off-market loans between taxable SPVs must be priced up or down to arm's length regardless of the fund's exempt status. Third, documentation thresholds apply per taxable person: a taxable SPV with AED 200 million of its own revenue maintains a Master File and a Local File even if the fund above it is exempt. Exempt at the top never means exempt from pricing discipline below.

Transactions with the exempt fund itself

Dealings between a taxable entity and the exempt QIF deserve particular care, because the asymmetry (one side taxed, one side not) is where value can shift. Price them as carefully as cross-border transactions — the FTA will.

1. Pricing the loan to the model, not the market. Setting the shareholder-loan rate to whatever the returns model needs instead of benchmarking the SPV's standalone credit.

2. Skipping Article 31. Computing the 30% cap on interest that was already disallowed on related-party acquisition debt.

3. Forgetting the order of operations. Arm's length first, Article 31 second, Article 30 third — each gate shrinks what reaches the next.

4. Flat-percentage management fees with no benefit test. A round number with no service evidence is an audit adjustment waiting to happen.

5. Reconstructing documentation at audit. The Master and Local Files must be contemporaneous; a file written after the FTA's request is late by definition.

6. Assuming domestic means exempt. Two UAE group companies must still price at arm's length.

7. Stranding the carry-forward. Building a ten-year interest shield into a five-year hold with no plan to absorb it.

What this page could not verify: FTA audit practice on transfer-pricing adjustments — the published guidance sets the framework, but adjustment methodology in live audits is not public. Future ministerial decisions under Article 30(7) on consolidated-group application of the interest cap — provided for in the law but not issued at publication. Comparables data — arm's length ranges depend on databases and comparability analyses specific to each transaction; this page states no market rate as fact. Official sources used: the FTA portal (tax.gov.ae) and the Ministry of Finance Explanatory Guide to Federal Decree-Law No. 47 of 2022. For advice on your structure's specific debt and fee flows, contact the TaxAdvisors team.