Timely compliance with Transfer Pricing regulations is not just a legal obligation but a strategic advantage. Embrace it as a proactive measure to safeguard your business from penalties and ensure transparency in your international dealings
The introduction of UAE Corporate Tax, effective from financial years starting on or after 1 June 2023, imposes rigorous Transfer Pricing Regulations. These regulations, outlined in Federal Decree-Law No 47 of 2022, ensure that all Related Party Transactions are conducted at arm’s length, promoting fairness and transparency in intercompany dealings. Below is a detailed guide to the key compliance requirements and deadlines that businesses must adhere to.
Key Transfer Pricing Provisions and Their Relevance
| S/N | Particulars | Articles of Federal Decree-Law No. 47 of 2022 | Relevance |
|---|---|---|---|
| 1 | Arm’s Length Principle | Article 34 | This principle is the cornerstone of Transfer Pricing regulations. It mandates that transactions between related parties be conducted as if they were between independent entities, ensuring that the pricing of goods, services, and intangibles reflects market conditions. Compliance with this principle is crucial to avoid adjustments by tax authorities that could lead to higher tax liabilities. |
| 2 | Related Parties | Article 35 | Defines what constitutes a “related party”, including entities with common ownership or control. Understanding this definition is critical for identifying transactions that fall under Transfer Pricing regulations and require documentation and reporting. Misidentification can result in non-compliance and potential penalties. |
| 3 | Connected Person | Article 36 | Specifies who is considered a “connected person,” such as family members or individuals with significant influence over the business. This expands the scope of Transfer Pricing regulations to include transactions not just between companies but also with individuals who have close ties to the business. Ensuring compliance in these transactions is essential to avoid scrutiny from tax authorities. |
| 4 | Transfer Pricing Documentation | Article 55 | Outlines the documentation requirements for Transfer Pricing, including the preparation of master files, local files, and Country-by-Country Reports (CbCR). Proper documentation is essential for demonstrating compliance with Transfer Pricing regulations and avoiding penalties. The absence or inadequacy of documentation can lead to significant penalties and increased tax exposure. |
Upcoming Transfer Pricing Compliance Deadlines
It is imperative for Finance and Tax Departments, along with Tax Advisors and Compliance Officers, to monitor the following upcoming deadlines to ensure compliance and avoid penalties.
A. For Tax Period: 1 July 2023 - 30 June 2024
| Activity | Articles of Federal Decree-Law | Remarks | Deadline |
|---|---|---|---|
| Tax Return | Article 53 | – | 31-March-2025 |
| Disclosure Format | Article 55 (1) | Yet to be prescribed by the Federal Tax Authority | 31-March-2025 |
| Local File | Article 55 (2), (3), (4) | Subject to conditions under Clause (2) of Article (55): a) MNE Group’s total consolidated revenue is AED 3.15 billion or more in the relevant tax period; or b) Taxable person’s revenue in the relevant tax period is AED 200 million or more. To be submitted within 30 days upon request by the Authority. | 31-March-2025 |
| Master File | Article 55 (2), (3), (4) | – | 31-March-2025 |
| Country by Country Report (CbCR) | Article 55 | Applicable to UAE-headquartered MNE Groups meeting specific revenue thresholds. See detailed conditions. | 30-June-2025 |
B. For Tax Period: 1 January 2024 - 31 December 2024
| Activity | Articles of Federal Decree-Law | Remarks | Deadline |
|---|---|---|---|
| Tax Return | Article 53 | – | 30-September-2025 |
| Disclosure Format | Article 55 (1) | Yet to be prescribed by the Federal Tax Authority | 30-September-2025 |
| Local File | Article 55 (2), (3), (4) | Subject to conditions under Clause (2) of Article (55): a) MNE Group’s total consolidated revenue is AED 3.15 billion or more in the relevant tax period; or b) Taxable person’s revenue in the relevant tax period is AED 200 million or more. To be submitted within 30 days upon request by the Authority. | 30-September-2025 |
| Master File | Article 55 (2), (3), (4) | – | 30-September-2025 |
| Country by Country Report (CbCR) | Article 55 | Applicable to UAE-headquartered MNE Groups meeting specific revenue thresholds. See detailed conditions. | 31-December-2025 |
C. For Tax Period: 1 April 2024 - 31 March 2025
| Activity | Articles of Federal Decree-Law | Remarks | Deadline |
|---|---|---|---|
| Tax Return | Article 53 | – | 31-December-2025 |
| Disclosure Format | Article 55 (1) | Yet to be prescribed by the Federal Tax Authority | 31-December-2025 |
| Local File | Article 55 (2), (3), (4) | Subject to conditions under Clause (2) of Article (55): a) MNE Group’s total consolidated revenue is AED 3.15 billion or more in the relevant tax period; or b) Taxable person’s revenue in the relevant tax period is AED 200 million or more. To be submitted within 30 days upon request by the Authority. | 31-December-2025 |
| Master File | Article 55 (2), (3), (4) | – | 31-December-2025 |
| Country by Country Report (CbCR) | Article 55 | Applicable to UAE-headquartered MNE Groups meeting specific revenue thresholds. See detailed conditions. | 31-March-2026 |
Consequences of Non-Compliance
Non-compliance with these deadlines can result in significant penalties. Businesses must be vigilant to avoid the following risks:
- Late Filing Penalties: Failing to submit tax returns or required documentation by the due dates can lead to substantial financial penalties and additional scrutiny from tax authorities.
- Failure to Maintain or Provide Documentation: Inability to produce Transfer Pricing documentation upon request can lead to penalties, with tax authorities potentially assuming non-compliance and adjusting taxable income accordingly.
- Penalties for Incorrect or Misleading Information: Providing inaccurate or misleading information in Transfer Pricing documentation can result in severe penalties, including fines and reputational damage.
Caution: Missing these deadlines or submitting inaccurate information can have severe legal and financial repercussions. It is crucial to ensure compliance and avoid unnecessary risks.
Who Should Manage These Deadlines?
The Finance and Tax Departments of companies, especially those handling international operations and transactions with related parties, are primarily responsible for ensuring these deadlines are met. Tax Advisors and Compliance Officers should work closely with these departments to ensure that all requirements are accurately and timely fulfilled.
Take Action Now: It is imperative to monitor these deadlines closely and engage with qualified tax professionals to avoid potential penalties and ensure full compliance with UAE’s Corporate Tax laws.
By staying proactive and organized, businesses can navigate these new regulations effectively and maintain compliance, thereby avoiding costly penalties and ensuring smooth operations.
