When businesses hear about the introduction of Transfer Pricing (“TP”) rules in their jurisdiction, the reaction is usually either head in the sand or panic mode! To ease the stress, today we summarise all you need to know about the new TP rules in the UAE.
Understanding TP in the UAE
TP plays a significant role in the global business environment, ensuring fair and arm’s length pricing between related entities engaged in controlled transactions. In UAE, the regulatory landscape for TP is governed by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law”), and the Federal Tax Authority (FTA) administers and enforces these rules.
Key Highlights of the UAE’s Transfer Pricing Rules:
When do TP rules come to effect?
Firstly, relevant UAE taxpayers will need to comply with the TP requirements for financial years commencing on or after 1 June 2024. So year one is upon us, no more time for dilly-dallying.
Who should comply?
The rules require a UAE business with a taxable revenue exceeding AED 200 million (i.e. approx. USD $55k) in a particular tax year or a business that is a member of a multinational group with consolidated revenue exceeding AED 3,15 billion (or USD $ 850k) and have transactions or arrangements between persons who are related parties or connected persons to maintain:
- A TP Master File;
- A TP Local file;
- A TP Declaration form; and
The country-by-country reports (“CBCR”) is also required for a multinational group with consolidated revenue exceeding AED 3,15 billion (Group threshold only as opposed to Local entity threshold)
Not meeting these thresholds does not mean that businesses do not need to comply with the TP rules, but rather the level of documentation required is (slightly!) less burdensome. It is important to keep any relevant additional supporting documentation to evidence the arm’s length principle as may be required by the FTA.
The Taxpayer should apply these rules and have prepared the TP Files either at the time the transaction or arrangement meeting the criteria is entered into or when the annual Tax Return is submitted. It then goes without saying that TP compliance is an annual obligation.
Transaction types
Both cross-border and domestic transactions are covered under the new TP rules, but if the transactions are only for a domestic group, one can leave the Master File at home and focus on the Local File instead.
The usual types of transactions are covered, from services, to goods, to sales /leasing of assets, intangibles and of course intragroup financing arrangements.
Upcoming Changes and Trends:
What’s most interesting about the UAE is that of course the TP rules come together with the new corporate tax rules, so the FTA actually cares about the outcome now! When new TP rules come into place, its critical to assess the appropriateness of Groups’ “as is” business models and ensure they remain fit for purpose and optimal under the new regime.
How Can We Assist You?
Our team of experts is well-versed in UAE’s TP regulations and can provide tailored advice to ensure your business stays compliant whilst also managing your wider commercial strategies. Whether you’re looking to review your transfer pricing policies, prepare documentation or reassess your business model we’re here to support you.
For any inquiries or assistance, please feel free to reach out to our dedicated TP advisory team.
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