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.
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.
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%.
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:
Taxable entities are obligated to employ one or more of the following methodologies to ascertain arm’s length values 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.
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.
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.
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.