Introduction
With the introduction of corporate tax in the UAE effective June 1, 2023, businesses operating in the region
must now navigate a new regulatory environment, particularly regarding transfer pricing (TP). Transfer pricing
rules are designed to ensure that transactions between related parties are conducted at arm’s length, i.e.,
consistent with how unrelated parties would transact.
Overview of Corporate Tax in the UAE
The UAE’s corporate tax regime applies to all resident juridical persons (e.g., LLCs, PSCs), non-resident
entities with a permanent establishment in the UAE, and free zone entities (subject to specific conditions for a
0% rate).
Key Features:
- Standard rate: 9% on taxable income exceeding AED 375,000.
- 0% rate: On taxable income up to AED 375,000 (for SMEs and startups).
- Certain sectors (e.g., oil & gas, banking) may be subject to different rules or exemptions.
What is Transfer Pricing?
Transfer pricing refers to the pricing of goods, services, and intangible assets transferred between related parties or entities under common control. The UAE’s transfer pricing rules are based on the OECD Transfer Pricing Guidelines, requiring entities to justify intercompany transactions, prepare and maintain
documentation, and comply with the arm’s length principle.
Who Is Affected by TP Rules?
Entities must comply with TP rules if they are part of a multinational group, enter into cross-border or
domestic related party transactions, or are required to file corporate tax returns in the UAE.
Transfer Pricing Requirements in the UAE
- Arm’s Length Principle: Entities must prove that transactions with related parties are priced similarly to
those with unrelated parties. - Transfer Pricing Documentation: Depending on size and structure, businesses may need to maintain:
- Master File
- Local File
- Disclosure Form
These are mandatory for entities with revenue >= AED 200 million or those in MNE groups with consolidated
revenue >= AED 3.15 billion.
- Country-by-Country Reporting (CbCR): Applicable to MNE groups with consolidated global revenues of
AED 3.15 billion or more.
Common Pitfalls and What to Be Careful About
- Incomplete or Inaccurate Related Party Disclosures
- Lack of Proper TP Documentation
- Free Zone Misconceptions
- Intercompany Loans and Interest Rates
- Misunderstanding Economic Substance vs TP
Best Practices for Compliance
- Conduct a TP risk assessment
- Benchmark intercompany prices
- Maintain up-to-date documentation
- File timely disclosures
- Seek professional advice
Conclusion
The introduction of corporate tax and transfer pricing rules in the UAE marks a significant shift in the country’s business environment. While the UAE remains an attractive tax jurisdiction, businesses must now proactively manage compliance to avoid audits and penalties.
