Introduction

Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law”) was issued on 3 October 2022 and published in Issue #737 of the Official Gazette of the United Arab Emirates on 10 October 2022. This law establishes the legal framework for imposing a federal tax on corporate and business profits in the UAE. Its provisions apply to tax periods beginning on or after 1 June 2023.

This guide is designed to provide clear and comprehensive guidance on the Transfer Pricing regime in the UAE. It aims to make the Transfer Pricing regulations as understandable as possible and offers readers:

• An Overview of Transfer Pricing Rules and Procedures: This includes the determination of related party transactions, assessing whether transactions are conducted on an arm’s length basis, and understanding other compliance requirements, such as the preparation and maintenance of Transfer Pricing documentation.
• Practical Assistance with Common Questions: By addressing frequently asked questions, this guide aims to reduce uncertainties for taxable persons regarding the implementation and application of the Transfer Pricing provisions under the UAE Corporate Tax Law.

Through detailed explanations and practical advice, this guide supports businesses in navigating the complexities of Transfer Pricing regulations and ensures compliance with the Corporate Tax Law in the UAE.

Definition of Transfer Pricing

Transfer pricing services refers to pricing goods, services, and intangibles between related entities within a multinational and local enterprise. It ensures that transactions between related parties are conducted at arm’s length, reflecting market conditions.

Relevance in the UAE

Given the UAE’s strategic position as a global business hub, transfer pricing is crucial for compliance with international tax laws and mitigating double taxation risk. It is also essential for maintaining transparency and fairness in intercompany transactions.

Key Components of Transfer Pricing Regulations

Arm’s Length Principle

The arm’s length principle requires that related-party transactions be conducted as if they were between unrelated parties, ensuring that prices reflect true market values.

Documentation Requirements

Businesses must maintain comprehensive documentation to support their transfer pricing policies. This includes the master file, local file, and Country-by-Country Reporting (CbCR).

Penalties for Non-Compliance

Non-compliance with transfer pricing regulations can result in significant penalties, including fines and adjustments to taxable income, leading to higher tax liabilities.

Transfer Pricing Services in UAE

Overview of Available Services

Transfer pricing services in the UAE encompass a range of activities, including risk assessment, documentation preparation, benchmarking studies, and dispute resolution. These services help businesses comply with regulatory requirements and optimize their tax positions.

Role of MASAR Chartered Accountants

MASAR Chartered Accountants is a leading provider of transfer pricing services in the UAE. With their extensive experience and expertise, they offer tailored solutions to meet the unique needs of businesses, ensuring compliance and strategic tax planning.

Local File

Definition and Purpose:

The Local File is a component of transfer pricing documentation that provides detailed information about the local entities of a multinational enterprise. It includes financial statements, transfer pricing policies, and detailed transactions with related parties. This information ensures that intra-group transactions are compliant with local tax laws and transfer pricing regulations.

Requirements in the UAE:

In the UAE, the Local File is required for multinational enterprises operating within the country. Businesses must maintain comprehensive documentation that supports their transfer pricing practices and demonstrates that transactions with related entities are conducted at arm’s length. This documentation must be available for submission to the UAE tax authorities upon request.

Master File

Definition and Purpose:

The Master File is a standardized document that provides an overview of a multinational enterprise’s global business operations, transfer pricing policies and allocation of income and economic activity. It serves to give tax authorities a clear picture of a company’s transfer pricing strategies and their alignment with the overall business operations.

Requirements in the UAE:

In the UAE, multinational enterprises are required to prepare a Master File if they meet certain criteria, such as revenue thresholds or the nature of their operations. The Master File must include detailed information on the global organizational structure, financial performance, and transfer pricing policies, and should be ready for submission to the UAE tax authorities when requested.

Country-by-Country Reporting

Definition and Purpose:

Country-by-country reporting (CbCR) is a global tax transparency initiative that requires multinational enterprises to report detailed financial and tax information for each jurisdiction in which they operate. This information is used to assess transfer pricing risks and ensure compliance with tax laws.

Requirements in the UAE:

In the UAE, CbCR is mandatory for multinational enterprises meeting specific revenue thresholds. Businesses must prepare and submit CbCR reports to the UAE tax authority, detailing their financial activities and tax payments in each country of operation. The CbCR report helps tax authorities to understand the global allocation of income and taxes paid, aiding in the detection of tax avoidance practices.

Disclosure Form

Definition and Purpose:

A Disclosure Form is a document required by tax authorities that provides specific details about a company’s financial transactions, tax positions, and compliance with tax regulations. It is designed to ensure transparency and proper reporting of financial information to facilitate accurate tax assessments.

Requirements in the UAE:

In the UAE, businesses are required to complete and submit Disclosure Forms as part of their tax compliance obligations. These forms must include detailed information about the company’s financial transactions, tax liabilities, and compliance with local tax laws. Timely and accurate submission of Disclosure Forms is crucial to avoid penalties and ensure compliance with UAE tax regulations.

Future Trends in UAE Corporate Tax and Transfer Pricing

Increasing Regulatory Scrutiny

As global tax authorities intensify their focus on transfer pricing and tax compliance, businesses can expect increased regulatory scrutiny. This underscores the importance of robust transfer pricing policies and comprehensive documentation.

Technological Advancements

Technological advancements, such as data analytics and artificial intelligence, are transforming the landscape of corporate tax and transfer pricing. These technologies enable businesses to analyse large volumes of data, identify trends, and optimize their tax strategies.

Corporate Tax Registration Deadline Calculator

To assist businesses in managing their corporate tax compliance, we offer a Corporate Tax Registration Deadline Calculator. This tool allows you to check the deadline for your trade license, ensuring you stay on top of your filing requirements and avoid any penalties.

Conclusion

In conclusion, understanding and complying with corporate tax and transfer pricing regulations in the UAE is essential for businesses to avoid penalties and optimize their tax positions. Engaging professional services, such as those provided by MASAR Chartered Accountants, can help businesses navigate the complexities of tax regulations and develop effective strategies for compliance and tax optimization. As the regulatory environment continues to evolve, staying informed and adopting best practices will be crucial for maintaining compliance and achieving business success.

FAQs

What is the primary purpose of transfer pricing regulations?

The primary purpose of transfer pricing regulations is to ensure that transactions between related entities within a multinational enterprise are conducted at arm’s length, reflecting market conditions. This prevents tax evasion and ensures the fair allocation of profits among different jurisdictions.

How can MASAR Chartered Accountants assist with transfer pricing compliance?

MASAR Chartered Accountants offers comprehensive transfer pricing services, including risk assessment, documentation preparation, benchmarking studies, and dispute resolution. Their expertise helps businesses comply with transfer pricing regulations and optimize their tax strategies.

What are the key components of Country-by-Country Reporting (CbCR) in the UAE?

CbCR requires multinational enterprises to report detailed financial and tax information for each jurisdiction in which they operate. In the UAE, businesses meeting specific revenue thresholds must submit CbCR reports to the tax authority, detailing their financial activities and tax payments in each country.

Why is compliance with corporate tax regulations important for businesses?

Compliance with corporate tax regulations is crucial for avoiding penalties, maintaining business reputation, and ensuring accurate financial reporting. Non-compliance can result in significant fines, legal issues, and damage to a company’s reputation.

What are the benefits of engaging in corporate tax advisory services?

Corporate tax advisory services provide businesses with expert guidance on tax planning, compliance, and optimization. These services help companies navigate complex tax regulations, minimize tax liabilities, and develop effective tax strategies.