Under the corporate law in UAE, the primary objective of transfer pricing regulations is to guarantee that transactions involving Related Parties adhere to the arm’s length principle, mirroring transactions conducted between independent entities. This ensures that taxable income manipulation is prevented. The corporate tax law of the UAE necessitates that taxable entities determine transactions with Related Parties and Connected Persons by specifying their market value. Therefore, it is recommended that taxable entities seek expert guidance from Tax Consultants in UAE to seamlessly and efficiently implement transfer pricing rules and maintain compliance.
Do transfer pricing rules apply to both domestic and cross-border transactions?
Transfer pricing rules are applicable to businesses in the UAE engaged in transactions with Related Parties and Connected Persons. This applies irrespective of whether these Related Parties or Connected Persons are situated within the UAE mainland, a Free Zone, or in a foreign jurisdiction.
Who are Considered as Related Parties?
In essence, Related Parties refer to an individual's relatives and also companies in which the individual, alone or alongside their Related Parties, holds a substantial ownership interest, typically 50% or more of the company's shares. Similarly, for a company, Related Parties encompass other companies in which the company, either alone or in conjunction with their Related Parties, holds a controlling ownership interest—typically 50% or more of the shares—or those under predominant ownership exceeding 50%.
Who are Defined as Connected Persons?
Connected Persons are distinct from Related Parties. Thus, an individual will be deemed connected to a business subject to UAE Corporate Tax if they fulfill any of the following criteria:
- They are the owners of the business.
- They hold a position as a director or officer within the business.
- They are a Related Party of either of the above.
- What methods are available to determine the arm's length value?
Taxable entities are obligated to employ one or more of the following methodologies to ascertain arm’s length values for transfer pricing purposes:
- Comparable Uncontrolled Price Method
- Resale Price Method
- Cost-Plus Method
- Transactional Net Margin Method
- Transactional Profit Split Method
- Obligation to maintain documentation for transfer pricing purposes
In the context of corporate tax, businesses in the UAE are required to uphold documentation concerning transactions with Related Parties and Connected Persons. Specific businesses are also mandated to submit this information along with their tax returns.
Must taxable entities ensure arm's length treatment for intra-group loan arrangements?
Transfer pricing rules extend to all transactions involving Related Parties and Connected Persons. Therefore, loans received from or provided to a Related Party or Connected Person must adhere to the arm’s length principle, encompassing factors like interest rates and duration.
Are transfer pricing rules applicable to transactions within a Tax Group?
Transactions among members of a Tax Group are consolidated in the Group’s financial statements, hence they are exempted from adhering to transfer pricing principles. However, an exception arises when a Tax Group member necessitates calculating and including its standalone Taxable Income for utilizing Tax Losses acquired prior to joining the Tax Group or upon exiting it.
Engage the Expertise of UAE Tax Consultants
To effectively ensure that transactions with Related Parties adhere to the arm’s length principle, it is advisable for taxable entities to enlist the services of UAE Tax Consultants. This ensures effective implementation of Transfer Pricing standards, as noncompliance could lead to substantial fines. Reach out to us for assistance, and we will be pleased to guide you.