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Transfer pricing rules in UAE

For corporate tax in UAE, transfer pricing rules aim to ensure that transactions between Related Parties are conducted in compliance with the arm’s length principle, such as transactions performed between independent parties. To avert the manipulation of taxable income, corporate tax law, the UAE requires taxable persons to determine transactions with Related Parties and Connected Persons by mentioning their Market Value. Therefore, it is advisable for taxable persons to seek expert consultation from Tax Consultants in Dubai to seamlessly and effectively implement transfer pricing rules and stay compliant.

Are transfer pricing rules applicable to both domestic and cross-border transactions?

Transfer pricing rules are applicable to businesses in the UAE that carry out transactions with Related Parties and Connected Persons, notwithstanding whether the Related Parties or Connected Persons are established in the UAE mainland, a Free Zone or in a foreign jurisdiction.

Who is deemed Related Parties?

Essentially, Related Parties denote the individual’s relatives and also companies in which the individual, alone or together with their Related Parties has a dominant ownership interest, for instance, 50% or more of shares of the company.
Correspondingly, Related Parties of a company point out to any other companies in which the company, only or together with their Related Parties, has a controlling ownership interest, generally of 50% or extra of shares of the company, or that are under greater than 50% prevalent ownership.

Who are considered Connected Persons?

Connected Persons are distinct from Related Parties. Therefore, a person will be treated as connected to a business that falls under the scope of UAE Corporate Tax, if they are any of the following:
1. The owner of the business.
2. A director or officer of the business; or
3. A Related Party of either of the above.

What transfer pricing methodologies can be employed to determine the arm’s length value?

Taxable persons are required to apply one or more of the following methodologies to determine the arm’s length values for transfer pricing purposes:
1. The comparable uncontrolled price method
2. The resale price method
3. The cost-plus method
4. The transactional net margin method
5. The transactional profit split method.

Read more: Transfer Pricing Under Corporate Tax in UAE

The requirement to maintain documentation for transfer pricing purposes

For corporate tax purposes, businesses in the UAE are required to maintain documentation in respect of their transactions with Related Parties and Connected Persons, and certain businesses are required to submit this information together with their tax returns.

Are taxable persons required to consider whether intra-group loan arrangements are at arm’s length?

Transfer pricing rules will be applicable to all transactions with Related Parties and Connected Persons. Thus, any loan acquired from, or issued to a Related Party or Connected Person is required to be in compliance with the arm’s length principle, for instance, interest rate and duration.

Will transactions in a Tax Group be required to adhere to transfer pricing rules?

Transactions between members of a Tax Group are withdrawn in the unification of the Group’s financial results statements, thus they are not compelled to comply with the transfer pricing principle unless a member of the Tax Group requires to calculate and include its stand-alone Taxable Income for the purposes of utilizing Tax Losses obtained prior to joining the Tax Group or upon leaving a Tax Group.

Seek expert consultation from Tax Consultants Dubai

To ensure that transactions between Related Parties are conducted in compliance with the arm’s length principle, it is advisable for taxable persons to seek the services of Tax Consultant Dubai to effectively implement Transfer Pricing standards, to which noncompliance accrues hefty fines. Thus, contact us and we shall be glad to assist you.

Reference: https://mof.gov.ae/corporate-tax-faq/

M. Al Khairy, LL.B Practicing law for almost a decade, he has in-depth knowledge on UAE legislation with particular expertise on family law, and regulatory compliance for business organizations. Al Khairy also provides counsel on legal rights and obligations in the UAE to clients, including individuals and businesses subject to investigation or prosecution under Criminal Law by major regulators. Read more