The Local File is a significant component of the UAE transfer pricing documentation requirements that provides detailed information on the taxpayer’s specific controlled transactions in the relevant tax period. Entities need to maintain a Local File in the UAE if they have a total consolidated group revenue of AED 3,150,000,000 or more in the relevant Tax Period, or if the taxable person’s revenue in the relevant Tax Period is AED 200,000,000 or more.
Taxpayers must include certain specific types of information in a Local File such as information on the local entity, detailed information on each material category of controlled transactions in which the entity is involved and financial information.
However, the Ministerial Decision No. 97 of 2023 and the UAE transfer pricing guidelines (CTGTP1) specifically set out scenarios where certain types of Controlled Transactions need to be documented by a Taxable Person in the Local File.
In this blog, we will discuss the scenarios where certain types of Controlled Transactions need to be documented by a Taxable Person in the Local File. Tax experts providing transfer pricing documentation services in the UAE can help you with maintaining your Local File. Read ahead for more insights:
Types of Controlled Transactions that Must be Documented
All the Controlled Transactions need to be conducted in line with the Arm’s Length Principle. However, as per Ministerial Decision No. 97 of 2023, the following types of Controlled Transactions need to be documented by a Taxable Person in its Local File:
- Controlled Transactions entered into with a Non-Resident Person other than a PE of a Non-Resident Person that is subject to the same Corporate Tax rate as the Taxable Person (for example, cross border transactions)
- Controlled Transactions entered into with an Exempt Person (i.e. Persons not subject to Corporate Tax)
- Controlled Transactions entered into by a Taxable Person with a Resident Person that benefits from the small business relief
- Controlled Transactions entered into by a Taxable Person with a Resident Person who is subject to a different Corporate Tax rate from that applicable to the Taxable Person (for example, transactions with a Qualifying Free Zone Person)
Controlled Transactions Exempt from Local File
The following Controlled Transactions are exempt from being included in a Local File:
- Controlled Transactions entered into by the Taxable Person with Natural Persons (provided that they are acting as if they were independent of each other)
- Controlled Transactions entered into by the Taxable Person with a juridical person that is considered to be a Related Party or a Connected Person solely by virtue of being a partner in an Unincorporated Partnership (provided that they are acting as if they were independent of each other)
- Controlled Transactions with a PE of a Non-Resident Person provided that the PE is subject to the same Corporate Tax rate as the Taxable Person.
However, it should be noted that these Controlled Transactions should nevertheless be undertaken on an arm’s length basis. The Taxable Person should also provide documentation to the Federal Tax Authority to support the arm’s length nature of these transactions when requested. Transfer pricing advisers in Dubai can help you with this.
Hire Best Transfer Pricing Documentation Services in Dubai
The Local File, along with the Master File, Country by Country Report (CbCr) and transfer pricing disclosure form, is an integral component of the UAE transfer pricing documentation requirements. If you meet the threshold mentioned in the blog, you need to maintain the mandatory transfer pricing documentation requirements in the UAE including the Local File. Further, even if the threshold for a Local File is not met, you still need to maintain records supporting the arm’s length nature of the transactions with Related Parties/Connected Persons.
If the MNEs find the documentation requirements complex, they must hire Tax Gian’s transfer pricing documentation services in Dubai, UAE. Tax Gian, a brand of Jitendra Tax Consultants (JTC), is one of the leading transfer pricing advisers in Dubai. We have a team of highly qualified tax experts who can guide businesses on all aspects of the UAE transfer pricing regulations. Call us today to avail yourself of comprehensive transfer pricing advisory services in the UAE.