The United Arab Emirates ushered in a fresh era of corporate tax regulations on June 1, 2023, including new transfer pricing rules. These significant changes are aligned with the OECD Transfer Pricing Guidelines and compel businesses with related parties in the UAE to abide by the arm's length pricing principle. Having an understanding of the new rules and consulting with a transfer pricing specialist will help you stay updated and avoid penalties.
Transfer pricing services are the practice of determining prices for transactions involving affiliated entities, such as companies within the same multinational enterprise group. The essence of arm's length pricing is to ensure that these transactions are conducted at prices equivalent to those that would prevail between independent entities under comparable circumstances.
These new UAE transfer pricing rules serve a dual purpose - thwarting profit shifting to low-tax jurisdictions by artificially reducing taxable income in the UAE and enhancing transparency and equity within the UAE's tax framework.
The impact of the new UAE transfer pricing rules extends to any enterprise engaging in transactions with related parties within the UAE. This encompasses both UAE-resident businesses and non-resident entities with a permanent establishment in the UAE.
Related parties encompass parent companies and subsidiaries, affiliates and sister companies, associated enterprises, and individuals who exert control over, or are controlled by a business.
Key Requirements of the New Transfer Pricing Rules
The new UAE transfer pricing rules necessitate that businesses:
Maintain comprehensive transfer pricing documentation endorsing the arm's length pricing of their transactions with related parties.
Submit a transfer pricing disclosure form in conjunction with their annual corporate tax return.
The transfer pricing documentation encompasses:
A master file, furnishing general information about the business, its related parties, and its transfer pricing policies.
A local file, furnishing specific information regarding the business's transactions with related parties in the UAE.
The transfer pricing disclosure form encompasses:
A summary of the business's transfer pricing strategies.
A roster of the business's related parties and the nature of transactions conducted with them.
The revenue and expenses arising from transactions with related parties.
How to Comply with the New Transfer Pricing Rules
To ensure compliance with the new UAE transfer pricing rules, affected businesses should undertake the following steps:
Identify their related parties.
Scrutinize their transfer pricing policies to confirm alignment with the arm's length principle.
Compile transfer pricing documentation substantiating the arm's length pricing of transactions with related parties.
Submit a transfer pricing disclosure form when filing their annual corporate tax return.
The new UAE transfer pricing rules are engineered to ensure equitable taxation for businesses operating within the UAE. Businesses affected by these regulations must adhere to them diligently to avoid potential penalties. For expert assistance with transfer pricing services, consult a qualified transfer pricing specialist.
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