UAE Transfer Pricing Guide 2024

The UAE's transfer pricing regulations are primarily based on the OECD Transfer Pricing Guidelines and BEPS Action Plan. These rules apply to transactions between related parties and with connected persons. The framework requires that such transactions be conducted at arm's length, meaning the conditions should be similar to those that would apply between independent entities. Understanding this framework is crucial for MNEs operating in or with the UAE to ensure compliance and avoid potential disputes with tax authorities.

The cornerstone of UAE transfer pricing regulations is the arm's length principle. This principle requires that the pricing of transactions between related parties should be set as if the parties were independent and operating in similar circumstances. Applying this principle often involves comparing the conditions of related party transactions with those of similar transactions between independent parties. Businesses must be able to demonstrate that their inter-company pricing adheres to this principle.

The UAE recognizes the five transfer pricing methods outlined in the OECD guidelines: Comparable Uncontrolled Price (CUP), Resale Price Method, Cost Plus Method, Transactional Net Margin Method (TNMM), and Profit Split Method. The selection of the most appropriate method depends on the facts and circumstances of each case. Companies should document their method selection process and be prepared to justify their choice to tax authorities.

UAE transfer pricing regulations require businesses to maintain three levels of documentation: Master File, Local File, and Country-by-Country Report (CbCR). The Master File provides an overview of the MNE group's global business operations. The Local File contains detailed information about material controlled transactions. The CbCR is required for MNE groups with consolidated revenues exceeding AED 3.15 billion. Timely preparation and maintenance of these documents is crucial for compliance.

The UAE defines related parties broadly, including entities under common control, associated enterprises, and connected persons. Transactions subject to transfer pricing rules include sales of goods, provision of services, transfers of intangible property, financial transactions, and cost contribution arrangements. Identifying and properly documenting all related party transactions is essential for robust transfer pricing compliance.

Benchmarking studies are a crucial component of transfer pricing analysis in the UAE. These studies involve identifying comparable transactions or companies to support the arm's length nature of related party transactions. The UAE tax authorities expect businesses to use reliable and up-to-date data sources for benchmarking. Regular updates to these studies are recommended to reflect changes in market conditions and business operations.

The UAE is expected to introduce an Advance Pricing Agreement (APA) program as part of its transfer pricing regime. APAs allow taxpayers to agree on transfer pricing methodologies with tax authorities in advance, providing certainty and reducing the risk of future disputes. While the specific procedures for APAs in the UAE are yet to be finalized, businesses should consider this option for complex or high-value transactions.

Non-compliance with UAE transfer pricing regulations can result in significant penalties. These may include fines for failure to maintain proper documentation, submission of inaccurate information, or non-submission of required reports. Additionally, transfer pricing adjustments may lead to additional tax liabilities and potential double taxation. Establishing robust transfer pricing policies and documentation processes is essential to mitigate these risks.

Transfer pricing regulations in the UAE also apply to transactions involving free zone entities. While free zone companies may benefit from certain tax exemptions, they are still required to comply with transfer pricing rules for transactions with related parties outside the free zone or in mainland UAE. Understanding the interaction between free zone benefits and transfer pricing obligations is crucial for businesses operating in or with UAE free zones.

In case of transfer pricing disputes, the UAE provides mechanisms for resolution. These include domestic appeal procedures and, where applicable, the Mutual Agreement Procedure (MAP) under tax treaties. Understanding these mechanisms is important for businesses to effectively manage potential disputes with tax authorities. Proper documentation and a proactive approach to transfer pricing can significantly reduce the likelihood of disputes.