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Transfer pricing involves rules and methods for deciding how to price transactions between interconnected companies, like those in the same multinational enterprise (MNE). Transfer pricing in UAE is to make sure these transactions are priced fairly, as if they were happening between separate, independent companies.
For businesses operating in the UAE, it's advisable to consult with professionals regarding transfer pricing to ensure compliance with regulations and avoid potential penalties.
Key points to consider about transfer pricing in the UAE include:
Establishing a transfer pricing policy is essential for businesses, outlining how they will price transactions with related parties.
Maintaining documentation that supports the transfer pricing policies is a requirement.
Businesses should be prepared for the possibility of a transfer pricing audit conducted by the tax authorities.
Transfer pricing involves determining the pricing of transactions between enterprises that share common ownership or control. The fundamental principle is to price these transactions as if they were conducted between independent entities. This principle forms the basis of transfer pricing regulations worldwide, including within the corporate tax framework of the UAE.
The necessary documentation comprises:
A transfer pricing policy outlines the company's approach to pricing transactions with related parties. It details the types of related party transactions, the methods used to establish arm's length prices, and the documentation maintained to justify these prices.
A master file serves as a detailed document outlining a business's transfer pricing policies and practices. It encompasses information about the company's group structure, related party transactions, and the methodologies employed to set arm's length prices.
This document offers in-depth insights into a business's transfer pricing policies and practices during a specific tax period. It covers details about related party transactions in that period, the methodologies employed for determining arm's length prices, and the accompanying supporting documentation.
Businesses might be asked by tax authorities to provide extra documentation based on their unique situations. It's essential for businesses to maintain all pertinent documentation securely for a minimum of five years.
On October 23, 2023, the Federal Tax Authority (FTA) introduced the Transfer Pricing Guide (TP Guide), aiming to provide practical insights and guidance to taxpayers on the Transfer Pricing (TP) rules and regulations as per the Corporate Tax Law of the United Arab Emirates (UAE CT Law).
The TP Guide closely follows the Transfer Pricing Guidelines outlined by the Organisation for Economic Co-operation and Development (OECD Guidelines). It furnishes comprehensive guidance on the Transfer Pricing (TP) framework in the UAE, offering practical illustrations on various aspects, including the identification of Related Parties and Connected Persons, conducting functional analyses, and determining pricing for intra-group financing transactions.
Alignment with Global Norms
Following globally acknowledged transfer pricing standards shields businesses from double taxation and aligns them with best practices worldwide.
Compliance with UAE Corporate Tax Law
It is essential to align intra-group transactions with the arm's length principle to fulfill UAE's corporate tax obligations and prevent penalties.
Risk Management
Precise transfer pricing documentation minimizes the likelihood of tax audits and disputes, both at the national and international levels.
Since these companies must follow the rules of UAE Corporate Tax Law and OECD principles, seeking the help of expert consultants becomes essential. Reyson Badger, a prominent corporate tax consultant in Dubai, specializes in delivering customized solutions to enhance compliance with legal frameworks and regulations, covering all aspects of accounting, auditing, and taxation needs. Our team of seasoned corporate tax consultants in UAE comprehends the intricacies of the tax environment and stands ready to aid your business in formulating tax-efficient strategies.