The UAE Transfer Pricing Disclosure Form: Essentials for Compliance

The UAE’s Federal Tax Authority (FTA) has implemented significant transfer pricing (TP) requirements under Federal Decree-Law No. 47 of 2022. These are critical for businesses operating in the UAE to comply with the new Corporate Tax (CT) regime. Here's a detailed overview and strategic guidance to assist businesses in adhering to these requirements:

Key Components of the Transfer Pricing Disclosure Form

1. Related Party Transactions: Businesses must disclose all transactions with related parties, detailing the transaction type (e.g., goods, services, interest, or IP), value, and the TP method applied. The objective is to validate that these adhere to the arm’s length principle.
2. Connected Persons: Information about transactions involving connected individuals (e.g., shareholders or directors) must also be reported separately.
3. Adjustments: Taxpayers must report any suo-moto adjustments made to align transactions with the arm’s length standard.
4. Thresholds and Documentation: Turnover Thresholds: A local file and master file are mandatory if annual turnover exceeds AED 200 million or if the business is part of a multinational group with a global turnover above AED 3.15 billion.
5. Documentation Requirements: Local files should illustrate compliance with arm's length principles, while master files provide a global overview of transfer pricing policies.

Strategic Actions for Compliance

1. Identify Related Parties and Connected Persons: Review business structures and transactions to ensure all relevant entities are captured. This includes overseas operations and UAE free zone entities, which must also adhere to the arm's length principle.
2. Ensure Accurate Transaction Categorization: Misclassification of transaction types (goods, services, etc.) could signal potential audit risks. Proper categorization aids in risk assessment and ensures compliance.
3. Conduct Regular Comparability Analysis: Align intercompany pricing with the market standard using benchmarking studies and ensure prices align with independent market values.
4. Maintain Robust Documentation: The local file, master file, and country-by-country reports (if applicable) must be ready for submission within 30 days upon request by the FTA.
5. Technology and Expertise: Invest in software for efficient tracking, analysis, and reporting of intercompany transactions. Engage transfer pricing experts to ensure compliance and leverage best practices.

Submission Deadlines

1. The TP disclosure form must be submitted along with the CT return, nine months after the tax period ends. For companies with a financial year ending on December 31, 2024, the deadline is September 30, 2025.

Challenges and Practical Tips

1. Salaries and Benefits: Payments to connected persons often pose compliance challenges. A detailed benchmarking study can justify arm’s length valuations.
2. Gross Income Reporting: Ensure accurate reporting of gross income, without netting rebates or incentives.
3. Tax Residence Disclosures: Discrepancies between a related party's tax residence and incorporation address need careful documentation to avoid disputes.

Broader Implications

The FTA uses TP forms as a risk assessment tool, highlighting areas for potential audits. Non-compliance could result in penalties or adjustments, increasing tax liabilities. For UAE businesses, proper TP strategies can also minimize risks and optimize tax outcomes by aligning operations with regulatory expectations.

Don’t let compliance challenges hold your business back! Partner with N R Doshi to navigate TP regulations seamlessly and optimize your tax outcomes.

Contact us today to get started!