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UAE – New Transfer Pricing Regime

OVERVIEW

On 23 October 2023, the Federal Tax Authority of the United Arab Emirates introduced the Transfer Pricing Guide to provide taxpayers with practical guidance on the identification, valuation, and documentation of their related party operations for the fiscal periods initiated on or after 1 June 2023, aiming to align the UAE’s tax system with international standards.

What’s new?

The Transfer Pricing Guide aims to provide further guidance to the transfer pricing documentation obligation introduced by Ministerial decision No 97 of 2023, issued on 11 May 2023 and applicable to companies that:

  • form part of a multinational enterprise with annual consolidated group revenues exceeding AED 3.15 billion; and
  • have a revenue that exceeds AED 200 million in the relevant tax period.

Taxpayers benefiting from the free-zone regime (0% tax rate) are also subject to the obligation to prepare and maintain their Transfer Pricing documentation to demonstrate that their related party operations comply with the arm’s length principle.

Impact on Transfer Pricing

Based on the Transfer Pricing requirements, taxpayers shall prepare the Masterfile and Local File documentation on a yearly basis, applying the OECD transfer pricing methods. Further supporting documents may be requested by the Tax Authorities.

The guidance clarifies the transactions subject to the scope of the transfer pricing documentation: (i) purchase, sales and lease of tangibles and intangibles, (ii) capital financing such as loan, or purchase/sale of equity, (iii) provision or availing of services; (iv) cost apportionments, allocations and contributions; (v) cost reimbursements, (vi) business restructuring or re-organisation transactions, (vii) transactions having a bearing on profits, income, losses or assets and (viii) transactions arising from prior arrangements between related parties (even if currently these are unrelated).

Key actions

To comply with the amended Transfer Pricing Rules and mitigate risks, taxpayers based in UAE shall review operations with permanent establishments, partners and other related parties to ensure that the conditions of such operations comply with the arm’s length principle and Transfer Pricing documentation shall be prepared in line with the applicable requirements.

The new transfer pricing rules also establish that companies shall submit a transfer pricing disclosure form as part of the annual corporate income tax return. Companies that fail to comply with the requirements may face penalties ranging from AED 10,000 to AED 100,000.

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