Free Zone to Mainland Pricing? Domestic APAs Are Live (And You Might Need One)

Your UAE parent company charges management fees to your Free Zone subsidiary. Or your mainland entity licenses IP to your Dubai branch. These are domestic transactions, and they just became a lot less risky.

The Federal Tax Authority started accepting Advance Pricing Agreement applications for domestic transactions in December 2025. If you have related parties operating within the UAE under different tax rates or incentives, you need to know about this.

Most businesses focus on cross-border transfer pricing. But domestic transactions carry equal scrutiny now that the UAE has Corporate Tax.

What Is a Domestic Advance Pricing Agreement?

A domestic Advance Pricing Agreement covers transactions between related parties that are both located in the UAE. This is different from cross-border APAs, which involve related parties in different countries.

The FTA introduced these because domestic transactions can shift profits between entities subject to different tax treatments. A Free Zone Person paying 0% Corporate Tax pricing a transaction with a mainland entity paying 9% creates the same transfer pricing concerns as international deals.

Here's what makes domestic APAs relevant: They give you certainty on pricing methodology for transactions that happen entirely within UAE borders but involve different tax rates or incentive structures.

The Federal Tax Authority confirmed applications for domestic transactions opened in December 2025, ahead of cross-border applications which follow in 2026.

When Do Domestic Transactions Need an Advance Pricing Agreement?

Not every UAE-to-UAE transaction qualifies for a domestic APA. The FTA has specific criteria.

Your domestic transactions may qualify if:

Different Corporate Tax rates apply

• Free Zone Person (0% rate) transacting with mainland entity (9% rate)
• Qualifying Free Zone Person transacting with non-qualifying entity
• Entities in different Emirates with different tax incentives

Tax incentives create different effective rates

• One entity claims tax incentives under Corporate Tax Law
• Other entity doesn't qualify for same incentives
• Transaction pricing could shift profits to lower-taxed entity

Transaction materiality meets thresholds

• Combined transaction value meets or exceeds AED 100 million per tax period
• Transactions are recurring and material to business operations
• Pricing methodology involves significant judgment or complexity

According to Gulf News, the phased rollout starting with domestic transactions reflects the FTA's deliberate approach to building capability.

The key test: Does the transaction involve parties subject to different Corporate Tax treatment that could incentivize profit shifting?

Domestic vs. Cross-Border APAs: What's the Difference?

Domestic APAs:

• Cover UAE-to-UAE transactions only
• Involve only the FTA (no foreign tax authorities)
• Available now (December 2025)
• Faster approval (no treaty coordination)
• Binding for UAE Corporate Tax only

Cross-Border APAs:

• Cover UAE-to-foreign country transactions
• May involve foreign tax authorities
• Coming in 2026
• Longer approval (requires treaty mechanisms)
• Can provide multi-jurisdiction protection

If you have both domestic and cross-border transactions, you might need both types. Domestic APAs protect your UAE internal structure; cross-border APAs cover international dealings.

Real Examples Where Domestic APAs Make Sense

Example 1: Free Zone Manufacturing to Mainland Distribution

Your Free Zone entity manufactures products and sells them to your mainland distribution company. Free Zone pays 0%, mainland pays 9%.

Without an APA: The FTA might claim you're setting artificially low prices to shift profits to the 0% entity.

With an APA: Pre-agreed transfer pricing methodology using comparable uncontrolled prices.

Example 2: Mainland IP Owner to Free Zone Licensee

Your mainland entity owns IP and licenses it to your Free Zone company. Mainland pays 9% on royalty income; Free Zone deducts royalty expenses.

Without an APA: Disputes over appropriate royalty rates and allocation methods.

With an APA: Pre-approved royalty calculation methodology for 3-5 years.

Example 3: Management Services Across Entities

Your Dubai holding company provides management services to subsidiaries in different Free Zones and mainland locations.

Without an APA: Questions about service pricing and cost allocation methods.

With an APA: Clear cost-plus methodology or other approved approach.

The Application Process for Domestic APAs

The process follows the same stages as cross-border APAs, but moves faster because you're only dealing with the FTA.

Critical requirements for domestic APAs:

You'll need to demonstrate:

• Both parties are UAE tax residents or have UAE permanent establishments
• Parties are subject to different Corporate Tax rates or tax incentive eligibility
• Arm's length pricing creates significant uncertainty or complexity
• Transaction value meets or justifies APA consideration
• Your business model is stable enough for multi-year agreement

The filing fee is the same: AED 30,000 for first applications, AED 15,000 for renewals.

Common Mistakes That Get Domestic APA Applications Rejected

1. Insufficient justification for different tax treatment You need to clearly show why related parties have different Corporate Tax rates or incentive eligibility.

2. Volatile or unpredictable business model Constant restructuring or wildly swinging transaction volumes will get rejected. APAs require stability.

3. Transactions already covered by safe harbours The FTA won't grant APAs for transactions under safe harbour provisions.

4. Poor economic analysis Weak comparables, inadequate functional analysis, or sloppy benchmarking gets rejected.

5. Inconsistency between contracts and conduct Written agreements must match how you actually operate. The FTA examines substance and form.

How We Help with Domestic Advance Pricing Agreements

We work with businesses that have complex UAE group structures spanning Free Zones, mainland, and different Emirates.

Pre-application review: We analyze your domestic group structure, identify qualifying transactions, and tell you honestly if a domestic APA makes sense.

Documentation and analysis: We prepare the complete application package, transaction details, functional risk profiles.

FTA engagement: We manage the pre-filing consultation, respond to FTA requests, and negotiate agreement terms.

Annual compliance: We handle the required annual declarations to keep your agreement valid.

As Khaleej Times reported, the introduction of APA fees signals a more formalized approach to complex tax arrangements in the UAE.

Why Domestic APAs Matter More Than You Think

The UAE Corporate Tax regime created significant domestic transfer pricing exposure that many businesses underestimate. Free Zone incentives, special tax rates, and varying effective rates across Emirates mean domestic transactions now carry real profit-shifting risk.

The FTA is watching these transactions closely. A domestic Advance Pricing Agreement gives you protection on internal UAE transactions while the FTA builds its audit practices.

Applications are open now. Cross-border APAs don't start until 2026. If you have significant domestic related-party transactions, this is your window.

We can help you evaluate whether your domestic structure warrants an APA and guide you through the application.