Complying with Transfer Pricing Documentation Requirements in the UAE Corporate Tax Law
A new decision related to Transfer Pricing under the Corporate Tax regime has been issued by the UAE Ministry of Finance, with Ministerial Decision No 97 of 2023 on how related parties and connected persons can price their transactions, in order to prevent profit shifting and tax avoidance caused by their relationships. Businesses also need to meet annual compliance requirements, which involve filing a disclosure form and keeping a local file and a master file.
The Ministry of Finance (MOF) has set out the requirements for maintaining transfer pricing documentation in Decision No. 97 of 2023. A local file and a master file must be kept if:
- A business’s taxable revenue exceeding AED 200 million, or
- A business that is part of a multinational group with consolidated revenue exceeding AED 3.15 billion.
The local file should include transactions or arrangements of a taxable person with certain related parties and connected persons, such as non-resident persons, exempt persons, and persons opting for small business relief. However, some transactions don’t need to be included, such as those with resident persons, natural persons, or juridical persons who are partners of an unincorporated partnership.
It’s important to note that the thresholds set out in the Decision only relate to maintaining transfer pricing documentation, not reporting specific transactions. So, even transactions worth AED 100 must be reported if the threshold is breached.
Overall, the new threshold for maintaining transfer pricing documentation should benefit small and medium-sized businesses in the UAE. However, larger businesses may still face administrative and cost burdens, as they need to keep track of the status of related parties and connected persons. It’s also worth bearing in mind that excluded transactions may still require an arm’s length evaluation unless specific regulations are released. Businesses forming tax groups will need to meet the thresholds at the parent level. Further guidelines for implementing the Decision and maintaining transfer pricing documentation are expected in due course.