Companies operating in the United Arab Emirates (UAE) must be prepared to comply with strict Transfer Pricing disclosure requirements.
With the recent implementation of these regulations, the UAE tax authorities intend to ensure that multinational companies follow fair and transparent practices in their related party transactions. Herein, we will address detailed guidance for Transfer Pricing obligations in the UAE.
What is Transfer Pricing?
It consists of the prices agreed in related company transactions, i.e., those of the same multinational group. These prices must be at free market conditions or the “Arm’s Length” Principle to prevent companies from mispricing international transactions to minimize their tax burden in high-tax countries by transferring profits to low-tax jurisdictions.
Transfer Pricing Regulations in the UAE
The UAE recently introduced solid Transfer Pricing regulations for its tax framework aligned with OECD recommendations. These regulations require companies with international operations to prepare and file detailed reports supporting that their related party transactions comply with the Arm’s Length Principle.
Disclosure Obligations
In order to comply with the new rules, companies in the UAE must comply with the following requirements:
- Transfer Pricing Declaration Form: As part of the corporate tax return, companies must file a specific form containing the nature and value of controlled transactions, details of related parties, and Transfer Pricing methods, among other items.
- Transfer Pricing Documentation (Local File): Companies must prepare a Transfer Pricing report documenting all related party transactions, including the methodology employed to determine that prices are under market prices, as support for the form mentioned in point 1.
- Master File: Multinationals in the UAE, under certain requirements, must prepare the Master File, which details the activities of the multinational group globally and the allocation of income and expenses.
- Filing Deadlines: The Transfer Pricing form must be filed within nine months from the close of the tax period. The documentation filing must be upon request by the tax authority. Failure to comply can result in substantial fines and tax audits.
Non-Compliance Consequences
Failure to comply with Transfer Pricing obligations can have serious repercussions. Sanctions include financial penalties, more rigorous tax audits, and increased exposure to tax risks. In addition, non-compliance can damage a company’s reputation with tax authorities.
Strategies for Complying with Transfer Pricing Requirements
Companies operating in the UAE should ensure the implementation of a robust system to manage Transfer Pricing compliance. Some strategies include:
- Benchmarking: Evaluating related party transactions to ensure compliance with the Arm’s Length conditions.
- Documentation Preparation: Concluding Transfer Pricing documentation, according to the minimum regulatory requirements, before filing the Transfer Pricing form and/or the deadline given by the tax authority as part of a requirement.
- Expert Advice: Consult with Transfer Pricing experts to ensure compliance with the UAE tax requirements.
Call to Action
If your company performs international transactions or operates in the UAE, you must prepare Transfer Pricing documentation on time to avoid penalties. Contact a Transfer Pricing expert to ensure your company complies with all tax regulations and optimizes its tax structure in the UAE.
Source: Mondaq
