Transfer Pricing in UAE: Documentation Requirements

UAE’s Cooperative Tax regime makes the rules strict for transfer pricing for businesses in the UAE. The provision of required documents with details is important for the smooth transfer of pricing.

The Federal Tax Authority (FTA) evaluates the documentation in detail. Missing, fake and incomplete documentation results in rejection of the application, strict legal action and penalties.

Tax Gian, one of the top corporate tax consultants in the UAE, helps businesses understand the complexities of corporate tax and handle tricky procedures for them.

Why Does Documentation Matter a Lot?

Businesses must set the prices in accordance with Arm’s Length Principles. The following are the methods allowed by the UAE transfer pricing rules:

• Comparable uncontrolled price method
• Resale price method
• Cost-plus method
• Profit Spit Method
• Transaction net margin method

The discounted cash flow method can be approached if the above method doesn’t fit, but it must be well documented. Missing or incomplete documents result in;

• The Federal Tax Authority (FTA)can adjust the business’s reported income. Which results in an increase in taxable income.
• FTA disqualifies the business from taking free zone benefits. Must pay the 9% tax like other businesses.
• Tax penalties could be imposed.

Under the UAE’s Global Tax Environment, weak documentation by the multinational groups also results in interrupted Tax Rate calculations. Which can trigger a tax of more than 15%. The best corporate tax consultants in Dubai can help businesses in proper documentation beforehand.

Comprehensive Documentation Guide

1. Transfer Pricing (TP) Disclosure Form:

Taxable people or businesses must file a TP disclosure form with annual corporate tax returns subject to applicable threshold. The form must have:

• Details of related individuals that have control or ownership and the individuals closely related to business owners like family members.
• Adjusted arm length values
• Gross transaction values: Complete details of transactions without any adjustments.

FTA requires all the details for risk assessments if any risk identification results in detailed audits.

2. Master File:

Master file includes the overview of the entire business or multi-national group. It includes the Group Structure, number of businesses operating globally, and TP policies.

The UAE follows the Guidelines of Organization for Economic Cooperation and Development (OECD)-an international organization that sets global standards for fair taxation in businesses- for Master file. The file must contain the TP approach and the reason why it senses globally.

3. Local File:

The local file consists of the details of the UAE’s business transactions. It must contain:

• Details of the transaction related to business individuals.
• Financial information of the UAE’s businesses.
• Financial analysis details the individual handling of the functions (selling, manufacturing), assets (factories and brand names) and risks.
• Economic analysis and benchmark studies.

Tax agents in Dubai can help you prepare all documents accurately.

What Kind of Businesses Require Full Documentation?

Not all businesses require the full documentation. If the business’s revenue exceeds AED 200 million or is a multinational group with global revenues above AED 3.15 billion. Other businesses whose revenues are smaller than that must meet the Arm’s length principles and provide to the FTA during the tax period.

Format and Time Requirements:

Documents could either be in English or Arabic. Must prepare the documents at the time of filing the cooperate tax return. If the FTA requests the files during the audits, it must be ready before it.

Businesses must take time to prepare each document comprehensively; mistakes could lead to the above-mentioned risks.

Relaxations to the Tax Groups and Free Zone Businesses:

• Tax Groups

According to the rules of FTA, the tax groups are considered as single taxpayers. During the tax period, they can provide single disclosure form, master file and local file. And the transactions between the tax group members are generally ignored. However, they still need to comply with the arm’s length regulations.

• Free Zone Businesses

Free Zone businesses enjoy the 0% tax rate. But they must have the complete documentation during the tax period. Otherwise, they have to pay the tax like other businesses.

Practical Measures for Businesses for TP:

• Collect the functional and economic data continuously instead of collecting it at the end of the year.
• Identify the business-related individual’s transactions.
• Prepare the TP documentation.
• Ensure that the business policies align with UAE rules.
• Make sure that you stay in touch with expert tax agents in the UAE.

Preparation of each document on time ensures the business’s protection under the UAE’s law. Ignoring these, businesses may face high taxes, penalties and law issues.

How can Tax Gian help?

Tax Gian has qualified tax agents who help businesses learn about complex tax frameworks and comply with tax requirements in the UAE properly. Without a good tax agent by your side, you can easily fall prey to legal complexities and penalties. Tax Gian wants you to stay out of these troubles and operate smoothly. Consult our expert tax agents in Dubai, UAE, today.