Transfer Pricing

The Transfer Pricing in UAE is designed to ensure that transactions between related parties are priced on an arm's length basis, in order to prevent tax avoidance and distortions of competition.

Transfer pricing is setting prices for transactions between related parties, such as multinational corporation subsidiaries. The goal of transfer pricing is to ensure that the prices of these transactions are fair and reasonable to prevent tax avoidance and distortions of competition.

The arm's length principle is the fundamental principle of transfer pricing. It states that the prices of transactions between related parties should be the same as the prices that would be agreed between independent parties. This means that the prices should be based on market conditions, such as the prices of similar goods or services in the open market.

Transfer Pricing is essential because: 

• To prevent tax avoidance: Transfer pricing can manipulate profits and artificially reduce tax liability.
• To ensure fair competition: Transfer pricing can also distort competition.
• To promote transparency: Transfer pricing can help to promote transparency and accountability in the global economy.
• Manage risk: Transfer pricing can be used to manage risk by shifting profits to countries with lower tax rates or hedging against currency fluctuations.
• Optimise tax liability: Transfer pricing can be used to optimise tax liability by shifting profits to countries with lower tax rates or taking advantage of tax breaks and incentives.
• Make strategic decisions: Transfer pricing can be used to determine where to locate production, where to sell goods and services, and how to structure transactions.

Businesses that are subject to the TP regime in the UAE are required to:

• Maintain TP documentation, which includes a master file and a local file.
• Submit a TP disclosure form to the Federal Tax Authority (FTA).
• Comply with the arm's length principle in pricing transactions with related parties.

The Federal Tax Authority  can adjust the prices of transactions between related parties if it believes that they have yet to be priced on an arm's length basis. The FTA may also impose penalties on businesses that fail to comply with the Transfer Pricing regime.

The TP regime in the UAE is a complex area of law. Businesses that are subject to the regime should seek professional advice to ensure that they are compliant.

The transfer pricing documentation should include the following:

• A description of the related party transactions.
• The methods used to determine the prices of the transactions.
• The results of the methods.
• Any other relevant information.

The transfer pricing documentation should be available to the tax authorities upon request.

Transfer pricing is a complex area of law. Businesses that are subject to transfer pricing rules should seek professional advice to ensure that they are compliant.

The UAE transfer pricing rules apply to all businesses that have related party transactions, regardless of whether they are resident in the UAE or not.

Related parties are defined as:

• Two or more individuals related up to the fourth degree of kinship or affiliation. This also includes affiliation through adoption or guardianship.
• An individual and a legal entity where the individual (either alone or through one of its related parties) directly or indirectly owns the legal entity (i.e., has a 50% or more shareholding interest)
• A legal person (whether alone or in conjunction with its related parties) directly or indirectly controls another legal person.
• Any person that (either alone or together with its related parties) has direct or indirect ownership (i.e., 50% or more) or controls two or more legal persons.
• Persons and their permanent establishments.
• Partners in an unincorporated partnership.
• Trustees, founders, and beneficiaries of trusts or foundations and their related parties.