The United Arab Emirates (UAE) Corporate Tax Law mandates taxable persons meeting specific criteria to maintain both a master file and a local file in their relevant tax period. These files contain information on related party transactions and serve to provide the tax authority with sufficient data to assess whether the taxpayer has complied with tax laws.
Criteria for Maintaining Master and Local Files
Clause (2) of Article (55) of the UAE Corporate Tax Law specifies two conditions for maintaining master and local files:
a) The taxable person is a Constituent Company of a Multinational Enterprises Group (MNE Group) as defined in Cabinet Decision No. 44 of 2020, and the MNE Group’s total consolidated group revenue is AED 3.15 billion or more in the relevant tax period.
b) The taxable person’s revenue in the relevant tax period is AED 200 million or more.
If a taxable person meets either of these conditions, they are obligated to maintain both a master file and a local file for the relevant tax period.
It is important to note that the conditions for maintaining a master file and local file, as outlined above, apply only to taxable persons. Free zone entities that are classified as qualified free zones and are not considered taxable persons are not subject to the above-mentioned thresholds. However, these entities are still required to maintain the necessary documentation as per Article 55 of the Corporate Tax Law.
Related Parties and Connected Persons in the Local File
The taxable person should include all transactions or arrangements with the following related parties and connected persons in the local file:
a. Non-resident person
b. Exempt person
c. Resident person (elected under Article 21) meeting conditions
d. A resident person with a different Corporate Tax rate
The taxable person should not include transactions or arrangements with the following related parties and connected persons in the local file:
– Resident persons not specified in (b), (c), and (d) of above
– Natural person if parties act independently
– Juridical person as a partner in Unincorporated Partnership if parties act independently
– Permanent establishment of non-resident person with same tax rate as taxable person.
Independent Transactions or Arrangements
The parties engaged in a transaction or arrangement should be considered independent of each other when both of the following conditions are met:
- Transaction or arrangement is in the ordinary course of business
- Parties are not exclusively or almost exclusively transacting with each other
If one person’s activities in a transaction or arrangement are subject to detailed instruction or comprehensive control by the other person in the same transaction or arrangement, such persons will not be regarded as acting as if they were independent of each other.
Determining Independence
The authority will consider all relevant facts and circumstances to determine whether the parties engaged in a transaction or arrangement are independent of each other.
Conclusion
The UAE Corporate Tax Law requires taxable persons meeting specific criteria to maintain a master file and a local file for their relevant tax period. The local file should contain information on related party transactions and include specific related parties and connected persons. The article outlines the conditions for considering transactions or arrangements as independent of each other and specifies that the tax authority will consider all relevant facts and circumstances to determine the independence of the parties involved in a transaction or arrangement.