Navigating the Upcoming Transfer Pricing Compliance Cycle in the UAE

The Ministry of Finance (MoF) issued The Federal Decree-Law No. 47 of 2022 on October 2022, on the Taxation of Corporations and Businesses (CT Law) which introduced the TP Regulations in United Arab Emirates (UAE). These TP regulations are effective for Financial Years (FYs) beginning on or after 1 June 2023 and thus the tax year ending 2024 would mark as the first year of TP compliances for entities in UAE. Since the introduction of the CT law, entities in UAE are taking steps to align themselves with the country’s new tax regime.

While the various compliances that are required to be undertaken from the TP perspective are discussed in the subsequent sections, one of the key TP compliance requirement includes the Transfer Pricing Disclosure Form (‘TPDF’) which includes data points relating to the nature and the value of the transactions with each related party and/or Connected Person (‘CP’), and the benchmarking method(s) used to determine the transactions’ arm’s length value. The TPDF is required to be filed along with the Corporate Tax Return within 9 months from the end of the relevant tax period, which means that the same shall be due to be filed on or before 30 September 2025 for the entities following December 2024 tax period.

We have highlighted below the key points that the entities need to take into consideration for bracing themselves with the upcoming TP compliances:

• Evaluating the applicability of TP compliances
• Compliance with arm’s length principle (irrespective of materiality thresholds)
• Robust analysis of the related party transactions
• Requirement to meet arm’s length standard for Qualifying Free Zone Person (QFZP)
• Payment made to Connected Person (CP)
• Interest-free loans and guarantee
• Maintenance of robust documentation
• Year-end TP adjustments
• Overdue receivables
• Simplified approach for low value-adding intra-group services (LVIGS)

Conclusion

2024 would mark as the first year of TP compliance in UAE. Taxable Persons in UAE need to be more cognizant with the governing regulations and have their framework and policy in place for transactions with related parties and CPs before initiating the process of yearly compliances. Though TP compliance requirement may not be applicable to small companies, TP Regulations highlight the importance of substantiating the ALP of the related party transactions. Thus, all the entities in UAE, irrespective of meeting the prescribed threshold for the compliances, would be required to prepare and maintain robust TP documentation in support of their related party transactions.

As highlighted earlier, UAE in recent years has largely aligned with global tax governance and has embraced more transparency from the perspective of compliance and substance requirements. Pro-actively having adequate and proper documentation on record for the transactions with related parties and CPs would assist the Taxable Persons in defending their positions before the FTA.