UAE Transfer Pricing Regulations

With the introduction of UAE Transfer Pricing Regulations, businesses operating in the UAE must adhere to international tax standards, particularly the OECD’s Base Erosion and Profit Shifting (BEPS) framework. These regulations are designed to prevent tax avoidance, ensure fair pricing in related-party transactions, and promote transparency in financial reporting. Companies engaged in cross-border or intercompany transactions must fully understand the compliance requirements to avoid penalties and maintain operational efficiency.

What Are UAE Transfer Pricing Regulations?

Transfer pricing refers to the pricing of goods, services, and financial transactions between related entities within a multinational enterprise (MNE). The UAE’s transfer pricing rules require businesses to demonstrate that these transactions comply with the arm’s length principle, meaning they are priced similarly to those between independent entities.

Core Principles of UAE Transfer Pricing

• Arm’s Length Principle (ALP): Ensures intercompany transactions are priced at fair market value.

• Transfer Pricing Documentation: Businesses must maintain sufficient documentation to justify their pricing methods.

• Country-by-Country Reporting (CbCR): Large multinational enterprises must disclose financial information for tax risk assessment.

Who Needs to Comply with UAE Transfer Pricing Rules?

The UAE’s transfer pricing regulations apply to:

• Entities subject to UAE corporate tax.

• Companies engaging in cross-border related-party transactions.

• Multinationals meeting the AED 3.15 billion revenue threshold for CbCR.

• Free zone companies involved in related-party dealings.

Transfer Pricing Documentation Requirements in the UAE

To comply with UAE transfer pricing laws, businesses must prepare the following:

1. Master File

• Provides an overview of the MNE’s global operations and transfer pricing policies.

• Describes the group’s financial structure and business model.

• Outlines how the group’s profits are distributed across jurisdictions.

2. Local File

• Contains details about the UAE entity’s related-party transactions.

• Justifies the transfer pricing methods used to determine arm’s length pricing.

• Includes financial and economic analyses to support intercompany pricing policies.

3. Country-by-Country Report (CbCR)

• Required for multinational groups with consolidated revenue above AED 3.15 billion.

• Summarizes financial data, including revenue, profits, and taxes paid in each jurisdiction.

• Helps tax authorities assess potential transfer pricing risks.

Accepted Transfer Pricing Methods in the UAE

The UAE allows businesses to use the following OECD-approved transfer pricing methods:

• Comparable Uncontrolled Price (CUP) Method: Compares related-party transaction prices with those of similar independent transactions.

• Resale Price Method (RPM): Evaluates the resale margin applied when goods or services are resold.

• Cost Plus Method (CPM): Examines the markup added to costs in intercompany transactions.

• Transactional Net Margin Method (TNMM): Assesses net profit margins in related-party dealings.

• Profit Split Method (PSM): Allocates profits based on contributions and risks shared by related entities.

Consequences of Non-Compliance

Failure to comply with UAE transfer pricing regulations can lead to:

• Significant financial penalties for incomplete or inaccurate documentation.

• Greater scrutiny from tax authorities and potential audits.

• Legal and reputational risks due to non-adherence to corporate tax laws.

To ensure compliance, businesses should:

• Maintain accurate and up-to-date transfer pricing documentation.

• Periodically review their intercompany pricing policies.

• Seek professional tax advisory services to align with UAE corporate tax regulations.

Conclusion

The UAE Transfer Pricing Regulations are an essential component of the country’s evolving corporate tax landscape. Companies must understand and implement the necessary compliance measures, ensuring transparency in related-party transactions. By adhering to these regulations, businesses can avoid legal complications, optimize tax efficiency, and contribute to a stable, fair, and internationally compliant tax environment in the UAE.