Transfer Pricing Requirements for UAE Corporate Tax Filing

The introduction of corporate tax in the UAE has brought transfer pricing regulations into sharp focus for businesses operating in the country. These regulations ensure fair pricing in transactions between related parties and align with international standards. Let's explore the key aspects of UAE's transfer pricing requirements that businesses need to know for their corporate tax compliance.

What is Transfer Pricing?

Transfer pricing refers to the rules and methods for pricing transactions between related parties. These transactions can include goods, services, financing arrangements, and intangible assets. In the UAE, businesses must ensure their related party transactions follow the arm's length principle, meaning prices should match those used in similar transactions between independent parties

UAE Transfer Pricing Documentation Requirements Taxable persons in the UAE are subject to specific transfer pricing documentation requirements. According to the Federal Tax Authority (FTA), entities must maintain both a master file and a local file if they meet either of these criteria:

1. Revenue of AED 200,000,000 or more in the relevant Tax Period, or
2. Membership in a Multinational Enterprise Group (MNE) with total consolidated group revenue equal to or exceeding AED 3,150,000,000 in the preceding Financial Year. These documentation requirements are in addition to the mandatory submission of the general transfer pricing disclosure form.

Documentation Components

Master File: This serves as a blueprint of the group's activity, providing comprehensive information about economic activities across different jurisdictions and the group's overall transfer pricing policy. Local File: More detailed than the master file, the local file specifically focuses on Related Party and Connected Persons transactions undertaken by group members. Its primary purpose is to provide functional and economic analysis that supports the arm's length basis of these transactions.

Country-by-Country Reporting Multinational enterprise groups with consolidated revenue exceeding AED 3.15 billion must submit a Country-by-Country Report. This report provides tax authorities with a global picture of revenue allocation and tax payments across jurisdictions.

Compliance Deadlines Businesses must prepare transfer pricing documentation by the corporate tax return filing deadline. The Local File and Master File should be available upon request by the tax authority, while the Country-by-Country Report has specific submission requirements.

Transfer Pricing Methods The UAE Federal Tax Authority accepts several methods for determining arm's length prices: • Comparable Uncontrolled Price Method • Resale Price Method • Cost Plus Method • Transactional Net Margin Method • Profit Split Method Companies should select the most appropriate method based on their specific circumstances and transaction types.

Record Keeping Maintaining proper documentation is crucial. Businesses should keep detailed records of: • Related party transaction details • Transfer pricing analysis and calculations • Supporting documents for pricing decisions • Agreements and contracts with related parties

Penalties and Consequences Non-compliance with transfer pricing requirements can result in significant penalties. The Federal Tax Authority may impose fines for: • Missing or incomplete documentation • Incorrect pricing methodologies • Late submission of required reports • Failure to maintain proper records

Best Practices for Compliance To ensure smooth compliance with UAE transfer pricing requirements: Maintain robust documentation systems from the start of the tax period. Regular updates to transfer pricing policies help track changes in business relationships and transaction patterns. Consider engaging transfer pricing specialists for complex transactions or documentation requirements. ** Impact on Business Operations** Transfer pricing regulations affect various aspects of business operations, including: • Supply chain management • Intercompany service arrangements • Financial planning and strategy • Group restructuring decisions

Looking Ahead As the UAE's tax landscape evolves, businesses should stay informed about transfer pricing requirements and updates. Regular reviews of transfer pricing policies and documentation help ensure continued compliance and minimize risks. By understanding and following these transfer pricing requirements, businesses can maintain compliance with UAE corporate tax regulations while managing their related party transactions effectively.