For corporate tax purposes in UAE, Taxable Persons are required to submit a declaration along with their tax returns. This declaration should contain information about the transactions and agreements the taxpayer is engaged in with individuals, legal entities, and associated persons. Thus, it is advisable for Taxable Persons to seek the services of Tax Consultants in UAE to ensure compliance with the Corporate Tax Law in UAE.
Filing of Master and Local Files
If transactions with related parties meet the conditions set by the Corporate Tax Law, Taxable Persons are required to submit both master files and local files in the prescribed format. This documentation must be submitted to the Federal Tax Authority (FTA) within one month of submitting an application or as per the directions given by the FTA. Further, Taxable Persons are required to provide the FTA with arm's length information within 30 days of filing a request for information related to their transactions or agreements with related parties and associated persons.
When are Master and Local Files Required?
As per Ministerial Order No. 97 of 2023, Taxable Persons must maintain both primary data registers and local registers during the relevant tax period if they meet any of the following conditions:
At any time during the relevant accounting period, the taxpayer is a constituent company of a multinational group as defined in the Council of Ministers Decision in the relevant tax period.
The taxpayer's income is AED 200,000,000 or more in the relevant tax period.
Excluded Transactions from the Local File.
Read more: Transfer pricing rules in UAE
The following transactions are exempted from the local file:
Taxpayers are not required to disclose trade arrangements and transactions with the following parties as per local records:
Individuals who have elected for the small business privilege under Article 21 of the Corporate Tax Law and meet the requirements for such selection
Residents whose earnings fall under a different applicable rate of corporate tax in the UAE, such as transactions between a mainland taxpayer and a person eligible for a territorial exemption.
Additional Exclusions from the Local File
The following transactions are also excluded from the local file:
Residents are not included in the previously mentioned categories. Individuals involved in the transaction or agreement behave as if they are unrelated to each other. A legal entity is considered a franchisee or related person solely because it is a partner in the business, as long as all parties to the transaction or agreement behave independently of each other
A non-resident with a permanent establishment in a country where their corporate income is taxed at the same rate as their personal income.
To comply with the aforementioned terms and conditions, the parties involved in the transaction or agreement will be considered independent of each other if either of the following circumstances occurs:
The transaction or agreement was made in the regular course of business.
These parties do not engage in exclusive or nearly exclusive negotiations with each other.
Additionally, individuals are not considered to be operating independently of each other if one person's actions within a transaction or agreement are subject to the explicit direction or overall control of another person within that transaction or agreement.
Read more: Transfer Pricing Under Corporate Tax in UAE
Seek the Expert Services of Tax Consultants in UAE
Taxable Persons falling into either of the two aforementioned categories of the division of a large multinational company or income of AED 200,000,000 or more must maintain primary and local records related to the transactions described above. However, Taxable Persons who do not fall into these categories should still be aware of the additional requirements for transfer pricing documentation for Corporate Tax purposes. They must retain records that confirm the commercial nature of transactions or agreements with related companies and related persons, regardless of whether they are required to maintain master and local files or not. Therefore, it is advisable for Taxable Persons to consult Tax Consultants in UAE to ensure compliance with the Corporate Tax Law in UAE.