Transfer Pricing Regulations in UAE

Transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control. We will assist you in having an initial understanding of transfer pricing regulations.

What is Arm’s Length Price?

The arm’s length price (ALP) of a transaction between two associated enterprises is the price that would be paid if the transactions had taken place between two comparable independent and unrelated parties, where the consideration is only commercial.

What will be the impact of Transfer Pricing Rules on Corporate Tax in UAE?

As per the current information from MOF (Ministry of Finance), transfer pricing rules seek to ensure that transactions between related parties are conducted in arm’s length terms (i.e as if the transaction were conducted between independent parties). UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines.

Taxpayers should apply the arm’s length principle to ensure that the transactions between related parties reflect independent pricing. Such arm’s length price is fairly a market price of such commodity or service in the market.

We expect that TP regulation will be part of UAE Corporate Tax Law and it may contain various methods of transfer pricing, vast annual transfer pricing documentation, and harsh penalties for non-compliance.

As a general practice, Federal Tax Authority (FTA) shall make an assessment and scrutinize the transfer pricing policies, documentation, inter-company and inter-group transactions, etc whether transactions are consistent with TP regulations. Business entities are subject to huge penalties for non-compliance with Transfer Pricing regulations.

Transfer Pricing Documentation

Businesses will have to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines.
Proper Transfer pricing documentation will assist the taxpayers to show that their transactions satisfy the arm’s length principle and hence eliminate transfer pricing disputes. If a business entity has increased volume and complexity of international as well as domestic transactions, it will lead to transfer pricing issues, so it will result in a significant increase in compliance costs for taxpayers.
In this respect, it is noted that clear and widely adopted documentation rules can reduce compliance costs that could otherwise arise in a transfer pricing dispute. To address such issues entity should have resources including an in-house or outsourced tax specialist who has expertise and knowledge about transfer pricing rules and international transactions.
Generally, a self-declaration regarding TP rules compliances shall be submitted along with the tax return electronically.

Why Transfer Pricing Documentation?
  •  Ensures that taxpayers consider transfer pricing requirements in establishing the prices and other conditions and in reporting income from such transactions in the returns.
  •  To provide tax administrations with the information necessary to conduct an informed transfer pricing risk assessment.