As of June 1, 2023, the United Arab Emirates (UAE) has implemented a comprehensive Transfer Pricing (TP) regime as part of its Corporate Income Tax Law (Federal Decree-Law No. 47 of 2022). This regulation, aligned with the Corporate Income Tax Law, Ministerial Decision No. 97 of 2023, and the OECD Guidelines, requires related party transactions to be at the Arm’s Length Principle.
Scope and Mandatory
All taxable companies performing related party or person transactions must comply with the Transfer Pricing rules. Even those exempt or qualifying for tax relief must adhere to these rules, although they could be exempt from maintaining complete documentation.
Documentation Requirements
Taxpayers must file a Transfer Pricing disclosure form with their tax return if:
- The total value of transactions with all related parties exceeds AED 40 million.
- The aggregate value per category of related party transactions exceeds AED 4 million.
In addition, a Local File and a Master File must be prepared if:
- The company belongs to a multinational group with consolidated revenues of at least AED 3.150 million.
- The individual company has revenues equal to or exceeding AED 200 million.
These documents must be available to the Federal Tax Authority (FTA) within 30 days of a request.
Subsequently, the Country-by-Country Report is crucial for filing quantitative information within the jurisdiction for multinational groups whose revenues exceed AED 3.15 billion in the consolidated financial statements.
Key Definitions
A related party is any person with:
- Family ties up to the fourth degree.
- Direct or indirect ownership of 50% or more in another entity.
- Control over 50% or more of the voting rights or the board of directors.
A related person is a person who:
- Directly or indirectly owns an equity stake in the taxable enterprise.
- Is a director, an officer of the corporation, or a related relative thereof.
- Is a partner in an unincorporated partnership and any related party of such partner.
Conclusion
Implementing these rules is significant for the UAE’s tax policy, promoting transparency and aligning with international standards. Companies must review their structures and transactions to ensure compliance and avoid penalties.
Need Assistance?
At TPC Group, we have Transfer Pricing experts who can assist you in adapting to the new regulations in your country. Contact us for customized advice and ensure your company’s regulatory compliance.
Source: Kinanis