The UAE introduces transfer pricing rules

19 January 2023
Tax Messenger
On 9 December 2022, Federal Decree-Law No. 47/2022 on the Taxation of Corporations and Businesses ("the Corporate Tax Law" / "the Law") was published on the official website of the Ministry of Finance of the UAE. Besides providing a legislative framework for the introduction of a corporate tax in the UAE, the Law also introduces federal transfer pricing rules.

The provisions of the Corporate Tax Law apply to tax periods commencing on or after 1 June 2023. The Law entered into force on 24 December 2022.

Below we provide a brief summary of the new transfer pricing rules (Chapter 10 and Article 53 of Chapter 17 of the Law), which are broadly in line with the basic international transfer pricing principles laid down in the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations issued by the Organisation for Economic Co-operation and Development ("the OECD Guidelines").
For the purposes of determining the corporate tax base, transactions between related parties must be concluded on free market terms in accordance with the "arm's length" principle.

Likewise, any payments in monetary or other form made by a taxpayer to connected persons are deductible only if they were made on a free market basis (at market value) and were incurred wholly and exclusively for the purposes of the taxpayer’s business.

The Law is lacking in detail on certain issues, such as:

  • The structure of the content of transfer pricing documentation, including master files and local files,
  • The financial threshold for treating transactions with related parties and connected persons as controlled,
  • Requirements relating to the strategy for conducting an economic analysis for the purpose of calculating the market range of prices/profit margins
  • Requirements as to how often transfer pricing documentation must be updated, et al.

Until the publication of relevant guidance or clarifications on the provisions of the Law or other UAE laws and regulations, it is advisable to rely on the OECD Transfer Pricing Guidelines, since the UAE is a member of the OECD Inclusive Framework on the Implementation of the BEPS Plan[1] and is highly likely to continue developing its local transfer pricing rules in line with the OECD Guidelines.
How B1 can help:

In light of the new transfer pricing rules in the UAE, B1 is ready to provide prompt support in:

  • analysing current transactions involving UAE companies and identifying and assessing transfer pricing risks
  • developing and implementing transfer pricing policies and models with the involvement of UAE companies
  • preparing templates of transfer pricing documentation, including master files and local files
  • carrying out benchmarking studies of prices / profit margins in relation to transactions with UAE residents
  • transfer pricing advice and planning for new transactions involving UAE companies.

  • Ruslan Radzhabov
    Transfer Pricing and Operating Model Effectiveness
  • Vasilii Anishchenko
    Associate Partner
    Transfer Pricing and Operating Model Effectiveness
  • Ekaterina Syrnikova
    Senior Manager
    International Tax and Transaction Services
  • Olga Lapitskaya
    International Tax and Transaction Services
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