Transfer Pricing Rules UAE: Domestic & Cross-border Guide
The UAE introduced its corporate tax regime in 2023, which changed how companies manage taxes. The new rules made businesses look at transfer pricing, not just for international deals but also for domestic ones. Many business owners wonder if these rules only affect international transactions or if they also include transactions within the UAE. Let’s break down these rules and help you understand how to comply with the UAE’s new tax environment.
What Are Transfer Pricing Rules?
Transfer pricing rules make sure businesses do deals with related parties at fair prices, called the arm’s length principle. This principle means a company must set prices as if the parties involved were not related, just like regular buyers and sellers do in the open market.
For example, let’s say Company A in Dubai sells goods to its sister company, Company B, also in Dubai, at a much lower price than usual. This could help Company A lower its taxable income. The transfer pricing rules help prevent this and keep the UAE’s tax system fair for everyone.
Do Transfer Pricing Rules Apply to Domestic and Cross-border Transactions?
Yes! In the UAE, transfer pricing rules apply to both domestic and cross-border transactions. That means companies must use arm’s length pricing when they deal with related parties inside the UAE or with companies in other countries.
Some key points to remember:
- All businesses must follow transfer pricing rules for deals with related parties or connected persons, no matter where they are.
- The UAE’s rules cover companies in the mainland, free zones, and even foreign companies with UAE ties.
- Both sales of goods and services, loans, licensing, and other business transactions fall under these rules.
Who Are Related Parties?
The UAE Corporate Tax Law says a related party can be:
- Companies owned or controlled by the same person or group.
- Family members, such as parents, spouses, children, and even relatives by adoption.
- A person or group that owns 50% or more of a company or controls at least 50% of the voting rights or profits.
Example:
Company X in Abu Dhabi owns 60% of Company Y in Sharjah. If these two companies do business, they must set their prices as if they were strangers, using the arm’s length principle.
Who Are Connected Persons?
Connected persons are people or entities with close ties to a company that could affect business decisions, such as:
- Company owners, directors, or managers
- Business partners or officers
- Anyone who has influence over management or operations
If a company pays money or gives benefits to a connected person, it must prove those payments are reasonable and match what’s normal in the market.
Why Are Transfer Pricing Rules Important?
Transfer pricing rules help:
- Prevent companies from shifting profits to lower-tax places
- Make sure all businesses pay their fair share of taxes
- Build trust in the UAE’s tax system
How Can You Stay Compliant?
Here are a few steps you should take to follow the transfer pricing rules:
- Identify all related and connected parties in your business structure.
- Document your deals with these parties and explain how you set prices.
- Use fair market prices (arm’s length) for all transactions with related parties.
- Keep records for at least five years to show the Federal Tax Authority (FTA) if they ask.
How Mubarak Al Ketbi (MAK) Auditing Can Help You
Mubarak Al Ketbi (MAK) Auditing helps businesses in the UAE stay on the right track with corporate tax and transfer pricing rules. Our experts can help you:
- Register for corporate tax and keep your business compliant
- Identify all your related and connected parties
- Prepare documents and set prices that meet the arm’s length principle
- Train your team about the new tax regulations
- Respond to FTA questions and audits
If you need help, remember, “Don’t put all your eggs in one basket”—get expert advice to protect your business!
For more information:
- Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Contact/WhatsApp: +971 50 276 2132
