Corporate Tax Advisory: UAE’s New Transfer Pricing Rules

The UAE Strengthens Tax Regulations with New Transfer Pricing Requirements

Corporate tax advisory Dubai services are becoming increasingly vital as the United Arab Emirates (UAE) enhances its tax regulations with the issuance of Ministerial Decision No. 97 of 2023. This decision, enacted by the Minister of State for Financial Affairs, introduces vital requirements for maintaining transfer pricing documentation in accordance with Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. These new regulations carry substantial implications for taxpayers operating in the UAE.

Defining the Landscape

Before delving into the specifics of the decision, it’s crucial to understand the context. The UAE government has been proactive in aligning its tax policies with international standards, especially those related to transfer pricing – the prices at which companies trade goods, services, or intellectual property across borders within a multinational group. The aim is to ensure fairness, transparency, and compliance with the arm’s length principle, where transactions between related entities should mirror those between unrelated parties in the open market.

Key Provisions of Ministerial Decision No. 97 of 2023

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1. Definitions: The decision begins by affirming that words and expressions will have the same meanings as specified in the Corporate Tax Law unless otherwise indicated.

2. Maintaining Master File and Local File: Perhaps the most significant aspect of this decision is the requirement for taxpayers meeting certain conditions to maintain both a master file and a local file during the relevant tax period. These conditions include being a Constituent Company of a Multinational Enterprises Group with a consolidated group revenue of AED 3,150,000,000 or more, or having a revenue of AED 200,000,000 or more.

3. Inclusion of Transactions with Related Parties: Taxable persons must include transactions or arrangements with specific related parties and connected persons in the local file. This includes non-resident persons, exempt persons, resident persons that have made an election under the Corporate Tax Law, and resident persons subject to a different corporate tax rate. However, certain entities and transactions, such as resident persons not falling into the specified categories, natural persons, and partnerships in unincorporated partnerships, are excluded from this requirement.

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4. Independence Criteria: The decision provides criteria to determine if parties in a transaction are acting independently of each other. Transactions must occur in the ordinary course of business, and parties should not exclusively or almost exclusively transact with each other. Parties that subject one another to detailed instruction or comprehensive control are not considered independent.

5. Guidelines and Documentation: The Federal Tax Authority will issue guidelines to clarify the application of these provisions and provide guidance on maintaining transfer pricing documentation.