Federal Decree Law No (47) of 2023 on the Taxation of Corporations and Businesses enforces transfer pricing rules and documentation requirements in the UAE to ensure that the pricing of transactions between related parties and connected persons, such as companies that are part of the same multinational enterprise (MNE) group, are not influenced by their relationships.
Transfer pricing rules apply to United Arab Emirates (UAE) businesses that have transactions with related parties and connected persons, irrespective of whether the related parties or connected persons are located in the UAE mainland, a Free Zone or in a foreign jurisdiction.
Related parties
Generally, related parties of an individual refer to the individual’s relatives as well as companies in which the individual, alone or together with their related parties, has a controlling ownership interest (typically 50 percent or more of shares of the company).
Similarly, related parties of a company refers to any other companies in which the company, alone or together with their related parties, has a controlling ownership interest (typically 50 percent or more of shares of the company), or that are under greater than 50 percent common ownership.
Further detail on the definition of related parties can be found in Article 35 of the Corporate Tax Law.
Connected persons
Connected persons are different from related parties. A person will be considered “connected” to a business that is within the scope of UAE corporate tax law if they are:
- The owner of the business;
2. A director or officer of the business; or
3. A related party of either of the above.
Transfer pricing methods
Generally, taxpayers are required to apply one or more of the following methodologies to determine the arm’s length values for transfer pricing purposes:
- The comparable uncontrolled price method
- The resale price method
- The cost-plus method
- The transactional net margin method
- The transactional profit split method.
Transfer pricing documentation
Businesses will be required to maintain information regarding their transactions with related parties and connected persons, and certain businesses will be required to submit this information along with their tax return. Businesses that claim small business relief will not have to comply with the transfer pricing documentation rules.
Certain businesses may be requested to maintain a master file and a local file.