One of the biggest global events of 2023 will be the advent of the Income-tax regime in the United Arab Emirates. UAE has officially issued a federal decree-law on corporate tax at a 9 per cent rate for taxable business profits exceeding AED375,000. Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses (the “Corporate Tax Law”). Businesses will become subject to UAE Corporate Tax (“Corporate Tax”) from the beginning of their first financial year, which starts on or after 1 June 2023.
A corporate tax regime without transfer pricing provisions would be spineless. Transfer pricing finds detailed mention in the Federal Decree released on 9 December 2022. While we are undertaking detailed research on transfer pricing law in the UAE, here is our first take on the transfer pricing law in the UAE.
- TP Regulation to apply to UAE Mainland as well as Free Zones.
- A Qualified Free Zone can continue to be qualified for 0% corporate taxes if it meets transfer pricing regulations and documentation. This means that without appropriate TP, a Free Zone can lose benefits.
- Arm’s Length Principle (ALP) finds its place in the UAE Tax Decree.
- 5 methods to benchmark transactions with Related Parties prescribed that are in line with the global approach
- 6th method available, where none of the above methods could be used to derive arm’s length results
- Choice of method depends on Contractual terms, Characterisation, Economic Circumstances, FAR analysis and Business Strategies
- The Most Appropriate Method (best suitable) concept used rather than Most Preferred Methods (hierarchy)
- The corresponding adjustment concept is brought in if a foreign tax administration makes adjustments to the ALP of the taxpayer.
- The concept of Associated Enterprises is subsumed by Related Parties with the threshold of 50% (In India – 26%)
- TP Documentation provisions are brought in, with 30 days provided for submission to tax authorities when called for
- Concept of Master File and Local file – thresholds to be declared
- The provision for the Transfer Pricing Disclosure form has been brought in (Similar to Form 3CEB – Transfer Pricing certificate)
- The ability to determine or exercise significant influence over the conduct of the Business and affairs is also covered in Related Parties
To know more about UAE transfer pricing or transfer pricing documentation, you can reach out at firstname.lastname@example.org