During the introduction of Corporate Tax in the country, the Ministry of Finance (MoF) announced the necessity of complying with transfer pricing legislation. In certain cases, the Federal Tax Authority (FTA) may conduct a transfer pricing audit of your company. While you cannot avoid such instances, there are things you can do to prepare for it.
What is Transfer Pricing?
Transfer pricing is the pricing set for exchange of goods, services, or intellectual property between entities owned by the same company, often a multinational enterprise. This is called the “arm’s length principle”, meaning that the entities are treated as if they have separate owners and therefore priced at the fair market rates.
In the UAE, the transfer pricing rules also apply to local entities. This makes having proper financial statements and records essential to stay compliant with the regulations. There are two types of parties involved in transfer pricing:
Related party:
Parties related to the company through family ties or ownership. Examples include relatives, subsidiaries, parent companies.
Connected person:
Upper management and their relatives, up to 4 degrees of relations. Examples include directors, owners, officers, and their families.
Transfer Pricing UAE Rules
- You will need to file a disclosure when submitting your Corporate Tax return if:
- Related party transactions exceed AED 40 million
- Any category (goods, services, interest) exceeds AED 4 million
- Payments to any connected person exceeds AED 500,000
- Transfer pricing rules also apply to Qualifying Free Zone Persons (QFZP).
- Entities that qualify for Small Business Relief are exempt from transfer pricing requirements.
- Groups with income from international sources over AED 3.15 billion must prepare a local file (UAE-based transactions) and master file (group’s transfer pricing policies). The same applies to any entity with revenue over AED 200 million.
3 Ways to Prepare for a Transfer Pricing Audit
1. File On Time
2. Re-check Your Documents & Method
As transfer pricing is based on the benchmarking data that you collect, make sure to check the reliability of the studies and data you based your pricing on. The FTA will ask to see proof so make sure you have all your documents (invoices, contracts, analysis reports) prepared and pre-checked.
3. Hire An Expert
Get Expert Auditing Services from A&A Associate
A&A Associate provides expert audit services in Dubai to companies of all sizes, both local and multinational. We provide internal audit and external audit services, ensuring that your company is compliant with the country’s regulations and laws.
