The UAE Federal Tax Authority (FTA) has been introducing publications and guides to the different aspects of UAE corporate Tax Law. Many businesses do not understand the new guides properly.
Even though some perceive the wrong implications of the new updates. So, it is not good for businesses to skip the updates and stay non-compliant. Also, it is crucial to stay informed about the new updates in corporate tax law, such as transfer pricing.
These are some of the problems businesses face with the new corporate tax guides.
- The lengthy and complex guide
- Jargon and technical language
- Frequent updates and change
- Lack of clarity on specific situations
- Lack of proper resources and training
- Difficulties in applying and interpreting the guides
- Impacts on business operations
These factors are challenging whenever FTA issues a new guide about corporate tax. However, you don’t have to worry much because here, tax consultants come. Also, you can get complete guidance from the best accounting and bookkeeping companies in the UAE.
In this blog, we will provide you with the main takeaways from the new corporate tax guide on transfer pricing. Keep reading if you want to know about the transfer pricing rules under corporate tax law. Moreover, some taxpayers may not know the concepts behind transfer pricing. So, we will start with an overview of the transfer pricing in the UAE.
What is transfer pricing?
Transfer pricing refers to the pricing of transactions between related parties. These parties can be parent companies’ subsidiaries. Also, these can be between different branches of the same company. Also, these transfers can involve the transfer of services, goods, financial instruments, or intangible assets.
The main objective of transfer pricing rules is to prevent the artificial shifting of profits between related parties in different tax jurisdictions. This practice can result in reduced tax liability in high-tax jurisdictions and increased profits in low-tax jurisdictions.
Connected Persons and related parties
The transfer pricing rules apply to related parties and connected persons. There is a detail in the corporate tax decree-law that includes detailed definitions of these terms. Related parties of an individual refer to the company’s relatives as well as individuals. It can be alone or together with their related parties and has a controlling interest. In addition, this interest can be 50% or more of the company shares. Related parties are other companies in which the company has a controlling ownership interest.
Basically, the term connected person refers to the owner of the business. Also, the officer of the business, director of the business, or a related party of the above.
What is the arm’s length value?
The arm’s length value is also called the arm’s length price. This price is agreed upon by independent parties in similar circumstances for transferring goods. Also, for financial instruments, services, or intangible assets.
This principle is explained in the Corporate Tax Law (Federal Decree-Law No.47 of 2022) of the UAE. It is further aligned with the principles of the Organization for Economic Co-operation and Development (OECD).
The arm’s length value is the price that would have been charged. If the transaction had taken place between two unrelated parties. These parties have no special relation with each other. Also, the valuation should not be affected by one party’s influence over the other.
The corporate tax decree law confirms the following transfer pricing methods. These transfer pricing methods are approved for use when calculating the arm’s length value:
- The resale Price method
- The comparable uncontrolled price method
- Transactional net margin method
- The cost-plus method
- The transactional profit split method
Key highlights of the transfer pricing in the guide
- The arm’s length principle and its applications.
- Transfer pricing methodologies include the comparable uncontrolled price (CUP) method and the cost-plus method. Also, the transactional net margin method (TNMM) and the profit split method.
- Strategies for preventing and resolving transfer pricing disputes.
- Documentation requirements for transfer pricing arrangements.
Benefits of Complying with Transfer Pricing Regulations
Complying with transfer pricing regulations offers several benefits for businesses, including:
- Enhanced tax compliance
By aligning transfer pricing policies with the arm’s length principle. Also, the businesses can minimize the risk of tax disputes and potential penalties.
- Improved financial transparency
Transparent transfer pricing practices foster trust and confidence among stakeholders. It includes investors, creditors, and regulators.
- Mitigated reputational risks
Complying with transfer pricing regulations helps businesses avoid reputational damage associated with tax avoidance.
How can ebs help?
Businesses are encouraged to seek professional guidance from tax experts. Also, transfer pricing specialists can provide experienced advice on developing and implementing compliant transfer pricing policies. Also, preparing comprehensive transfer pricing documentation. Moreover, we will assist in representing businesses in any transfer pricing disputes. You can consult ebs for any queries about the transfer pricing rules.
Conclusion
Businesses operating in the UAE should ensure compliance with the newly introduced transfer pricing rules under the CT law. These rules are made to align transfer pricing practices with the arm’s length principle. Also, prevents the artificial shifting of profits between related parties. If businesses fail to comply with the transfer pricing rules. Then, it can bring significant tax penalties and reputational damage.
ebs, a leading accounting and bookkeeping firm in Dubai. We can provide comprehensive guidance on transfer pricing compliance. Our team of experts can assist businesses in developing and implementing compliant transfer pricing policies. Also, preparing transfer pricing documentation and addressing any transfer pricing disputes.
Our corporate tax services include:
- International Tax
- Tax Audits
- Corporate Tax Planning
- Corporate tax registration
- Tax Preparation
- Tax Compliance
Our services include accounting and bookkeeping services, Due Diligence audit services, Auditing, and many more. You should get in touch with our experts and contact us today.
FAQS
What is corporate tax in UAE 2023?
The UAE corporate tax is effective from 1 June 2023. In addition, businesses are liable to pay a tax of 9% on taxable profits of more than AED 375,000.
Is Dubai tax-free for business?
There is currently no income tax, withholding tax or inheritance tax in Dubai. However, corporate tax of 9% was introduced for companies in June 2023. However, small to medium-sized free zone companies can get 100% tax exemption.
Is it mandatory to register for corporate tax in UAE?
According to the FTA’s Federal Decree Law 47, the corporate tax regime demands every taxable person to register for corporate tax and get a registration number. The taxable person also includes a free zone person.
What are the taxes in the UAE?
The UAE does not levy income tax on individuals. However, it imposes a corporate tax on the taxable person. Excise tax is levied on goods that are harmful to the environment or human health.