As of June 1, 2023, the United Arab Emirates (UAE) has implemented a comprehensive Transfer Pricing (TP) regime as part of its Corporate Tax Law (Federal Decree-Law No. 47 of 2022). This regulation, aligned with the Corporate Tax Law, Ministerial Decision No. 97 of 2023, and the OECD Guidelines, requires that transactions between related parties be conducted in accordance with the arm’s length principle.
Scope and Mandatory Nature
All taxable companies that engage in transactions with related parties or associated persons must comply with TP rules. Even those that are exempt or qualify for tax relief must adhere to these rules, although they may not be required to maintain complete documentation.
Documentation Requirements
Taxpayers must file a TP disclosure form with their tax return if:
- The total value of transactions with all related parties exceeds AED 40 million.
- The value added by category of transaction with related parties exceeds AED 4 million.
In addition, the preparation of a Local File and a Master File is required if:
- The company is part of a multinational group with consolidated revenues of at least AED 3.15 billion.
- The individual company has revenues equal to or greater than AED 200 million.
These documents must be made available to the Federal Tax Authority (FTA) within 30 days of a request.
Subsequently, the Country by Country Report must be submitted in order to provide quantitative information within the jurisdiction in the case of a Multinational Group whose income exceeds AED 3.15 billion in its consolidated financial statements.
Key Definitions
A related party is considered to be any person who has:
- Family ties up to the fourth degree.
- Direct or indirect ownership of 50% or more of another entity.
- Control over 50% or more of the voting rights or the board of directors.
A related person is one who:
- Directly or indirectly owns an interest in the taxable enterprise.
- Is a director or officer of the enterprise, or a related relative of these.
- Is a partner in an unincorporated partnership and any related party of such partner.
Conclusion
The implementation of these rules marks a significant step forward in the UAE’s tax policy, promoting transparency and aligning with international standards. It is crucial that companies review their structures and transactions to ensure compliance and avoid penalties.
Need Assistance?
At TPC Group, we have Transfer Pricing experts who can help you adapt to these new regulations in the UAE. Contact us for a personalized consultation and ensure your company’s regulatory compliance.
Source: Kinanis