The introduction of corporate tax in the UAE, effective for financial years starting on or after June 1, 2023, has brought transfer pricing to the forefront as a critical compliance issue for multinational enterprises (MNEs) and companies engaged in related party transactions. Transfer pricing involves setting prices for transactions between affiliated companies. This article will discuss how UAE’s corporate tax regime is designed to align with global best practices, role of corporate tax consultants in Dubai in minimizing compliance burdens, and support the country’s position as a global financial center. 

Understanding UAE Corporate Tax 

The Federal Decree-Law No. 47 of 2022 implemented corporate tax in the UAE, with Article 34 addressing transfer pricing and regulating related party transactions based on the arm’s length principle. The standard statutory tax rate is 9%, with a 0% tax rate for taxable profits up to AED 375,000 to support small businesses and startups. 

The primary goals of transfer pricing rules are to prevent profit shifting and ensure profits are taxed where the economic activity occurs. The UAE government has adopted many recommendations from the OECD transfer pricing guidelines to establish its transfer pricing system. These regulations apply to related party transactions, including those involving associated enterprises and branches, and require that transactions are conducted at arm’s length. Non-compliance can result in fines ranging from 5% to 10% of adjusted profits. 

Transfer Pricing Methods 

The UAE recognizes five transfer pricing methods: 

• Comparable Uncontrolled Price (CUP): This method compares the price in an internal transaction between affiliates to the price charged in an external, arm’s length transaction for the same product or service. 

• Resale Price Method (RPM): This method works backward from the price at which a product is resold to an independent party, deducting a gross margin to arrive at an arm’s length price. 

• Cost Plus Method: This method adds a markup to the cost of producing goods or services to determine an arm’s length price. 

• Transactional Net Margin Method (TNMM): This method examines the net profit margin relative to costs, sales, or assets, and compares it to the margins earned by independent parties in similar transactions. 

• Transactional Profit Split Method: This method allocates profits between related parties based on the relative value of their contributions to the transaction. 

The Role of Corporate Tax Consultants in Dubai 

Given the complexities of transfer pricing regulations in the UAE, seeking guidance from corporate tax consultants in Dubai is essential. These experts can provide the necessary knowledge and support to ensure compliance and optimize tax efficiency. Corporate tax consultants Dubai can assist with: 

• Transfer pricing documentation: This includes preparing a master file, local file, and country-by-country reporting. 

• Compliance: Ensuring adherence to transfer pricing regulations and reporting related party transactions in tax returns. 

• Risk assessment: Identifying and mitigating potential transfer pricing risks. 

• Transfer pricing studies: Conducting detailed analyses to determine arm’s length prices and support transfer pricing positions. 

Documentation and Compliance 

Transfer pricing documentation is crucial for demonstrating compliance with UAE regulations. This typically includes a master file providing an overview of the MNE group, a local file detailing specific transaction of the local entity, and country-by-country reporting for MNEs meeting certain revenue thresholds. The transfer pricing study needs to be certified by a transfer pricing advisor. It is also important to retain all relevant documents and report related parties’ transactions in the tax returns. 

Seeking Expert Advice 

Navigating the UAE corporate tax landscape, particularly concerning transfer pricing, requires a thorough understanding of the regulations and their practical application. Engaging with experienced corporate tax consultants in Dubai ensures that businesses not only comply with the law but also optimize their tax position within the framework. As the transfer pricing regulations UAE continue to develop, staying informed and seeking expert advice is key to thriving in the global economy. 

FAQs: 

What is transfer pricing under UAE’s Corporate Tax?

Transfer pricing refers to the pricing of transactions between related entities to ensure fair tax compliance.
 

How does transfer pricing affect UAE businesses?

Businesses must ensure their intercompany transactions are priced according to market value for tax compliance.
 

Are transfer pricing rules applicable to all businesses in the UAE?

Yes, transfer pricing regulations apply to all businesses with international or intercompany transactions in the UAE.
 

What are the penalties for non-compliance with transfer pricing rules?

Non-compliance can lead to fines, audits, and adjustments in taxable income.