Transfer Pricing UAE
Transfer Pricing UAE is a key topic for multinational companies that move profits across borders to cut down their tax bills. Without proper reporting, tax authorities are left in the dark, causing some countries to lose major tax revenues while others turn into safe havens for profits. To solve this issue, the UAE has introduced Country-by-Country Reporting, an international standard created by the OECD and G20 to boost transparency.
For businesses operating in the region, Transfer Pricing UAE is something that cannot be ignored. Multinational enterprises must follow these rules carefully to avoid penalties and compliance risks. With the guidance of experts like AHG, companies can understand the requirements, stay compliant, and focus on their core growth without the stress of unexpected tax issues. troubles.
Transfer Pricing Rules in UAE Corporate Tax Law
Transfer Pricing UAE is directly addressed under the Federal Decree-Law No. 47 of 2022, also known as the Corporate Tax Law, which came into effect on June 1, 2023. This law sets clear rules for transfer pricing through Articles 34 to 36 and is backed by Ministerial Decision No. 97 of 2023, along with the UAE Transfer Pricing Guide issued in October 2023.
In simple terms, Transfer Pricing UAE requires businesses to keep full documentation and apply fair pricing for all transactions with related parties. The system is closely aligned with the OECD Transfer Pricing Guidelines, ensuring that multinational companies follow international standards while staying compliant with local tax laws.
Who Must Follow Transfer Pricing Rules in the UAE
Transfer Pricing UAE applies to businesses that fall under certain thresholds set by the Corporate Tax Law. Companies need to comply with these requirements if they meet any of the following conditions:
- Engage in related party transactions worth AED 40 million or more in a financial year.
- Provide benefits of AED 500,000 or more to connected persons.
- Earn total revenue of AED 200 million or more, which triggers documentation requirements.
- Belong to a multinational group with global consolidated revenue of AED 3.15 billion or above.
It’s important to note that even Free Zone entities and tax-exempt businesses must comply with these rules if they cross the stated limits. Transfer Pricing UAE ensures that businesses of all types maintain fair dealings and proper documentation, keeping them in line with international standards and local compliance.
What is CbCR in the UAE
Transfer Pricing UAE regulations also include Country-by-Country Reporting, known as CbCR. This is a requirement under Action 13 of the OECD’s Base Erosion and Profit Shifting framework. It makes large multinational groups submit a detailed report that shows revenue, profit, and tax generated in each country where they operate. The report also covers employee numbers, business activities, and other key economic details.
The purpose of CbCR is to help tax authorities identify whether profits are declared where the real business activity takes place or if they are being shifted to low-tax jurisdictions. By enforcing CbCR, Transfer Pricing UAE ensures transparency and fairness in global tax reporting, reducing the chances of profit shifting and tax base erosion.
UAE’s CbCR Legal Framework
Transfer Pricing UAE rules make Country-by-Country Reporting (CbCR) mandatory under Cabinet Resolution No. 44 of 2020, which replaced Resolution No. 32 of 2019. These rules apply to multinational groups headquartered in the UAE with total consolidated revenue of more than AED 3.15 billion, or about EUR 750 million, in the previous financial year. CbCR in the UAE has been in effect for financial years starting on or after January 1, 2019.
Who Must Report under CbCR?
To comply with Transfer Pricing UAE and CbCR requirements, your company must meet the following conditions:
- Be part of a multinational group operating in more than one country.
- Have group revenue equal to or above AED 3.15 billion in the fiscal year before the reporting year.
- Have the UAE-based ultimate parent company responsible for filing the report.
If your business doesn’t cross this threshold, CbCR rules don’t apply. However, working with professional tax advisors can help you clearly understand your obligations and avoid compliance issues.
Important Deadlines for CbCR in the UAE
Transfer Pricing UAE rules set strict timelines for Country-by-Country Reporting that every multinational must follow:
- CbCR Notification: Must be filed with the Federal Tax Authority (FTA) no later than the last day of the taxable year. This informs the FTA which entity, usually the ultimate parent company, will submit the report.
- CbCR Report: Must be filed within 12 months after the end of the reporting year. For example, if your year ends on December 31, 2024, you need to notify the FTA by that date and submit the full report by December 31, 2025.
What Needs to Be in the CbCR Report?
To comply with Transfer Pricing UAE standards, the report must follow the OECD model and include three main sections:
- Table 1 – Financial Data: Revenue from related and unrelated parties, profit before tax, taxes paid and accrued, stated capital, number of employees, and tangible assets per country.
- Table 2 – Activities by Entity: The key business activities of each entity, such as manufacturing, services, or R&D.
- Table 3 – Additional Information: Clarifications or extra notes that help explain the data in tables 1 and 2.
Language, Format, and Currency Requirements
- Reports must be submitted in English.
- Data should come from group financial statements, using the group’s functional currency with average yearly exchange rates.
- Records of all data sources must be kept clear and consistent, especially if they change year to year.
Getting professional support from tax consultants in the UAE can help ensure your CbCR is filed correctly and on time.
Fines and Penalties for not filing CbCR
Companies in the UAE must follow strict rules when it comes to CbCR reporting. If a Reporting Entity or Ultimate Parent Entity fails to comply, penalties can quickly add up. For example:
- AED 100,000 fine for not submitting required information.
- AED 50,000 to AED 500,000 for incomplete or incorrect reports.
- AED 1,000,000 fine if the Ultimate Parent Entity misses the notification deadline, plus AED 10,000 for each day of delay (up to AED 250,000).
Overall, the maximum fine per fiscal year is capped at AED 1,000,000, not counting the extra daily penalties. This makes it crucial for businesses to understand their obligations under Transfer Pricing UAE.
Confidentiality and Use of Data
The Ministry of Finance guarantees that the information shared in CbC Reports stays confidential. The data is mainly used to:
- Identify potential transfer pricing risks.
- Assess risks linked to BEPS.
- Carry out broader economic and statistical studies.
It’s worth noting that these reports are not meant for direct audits or enforcement unless a clear risk is detected.
Record-Keeping Rules
Companies that file the CbC report in the UAE must keep all supporting documents for at least five years. Digital records are allowed, but they must remain clear, accessible, and in line with UAE regulations.
Special Cases: Permanent Establishments
If a UAE company operates a branch abroad, such as in the UK, its foreign income and other financial figures should be reported under that country, not the UAE. This prevents double counting of profits. Tax agents in Dubai often highlight this point as part of Transfer Pricing UAE compliance.
Sources of Data
Businesses can use different data sources, but consistency is key. These include:
- Consolidated reporting packages.
- Standalone financial statements of each entity.
- Regulatory filings.
- Internal management accounts.
If a company changes its data source from one year to another, it must explain the reason in Table 3 of the report.
Conclusion
In short, CbCR has become a cornerstone of compliance for multinational groups in the UAE, ensuring that profits are reported where real business activities take place. Staying aligned with Transfer Pricing UAE requirements not only helps you avoid costly penalties but also builds trust with the authorities. With the right guidance from experts like AHG, businesses can navigate these rules smoothly and keep their focus on growth while remaining fully compliant.
Managing finances as an influencer in the UAE can get complicated, but AHG makes it easier. With our experience in influencer accounting, we handle everything from tax compliance to financial planning, so If you need any tax services or tax consultancy, you won’t find better than AHG Legal Accounts. Each of our teams has extensive experience in this field and will provide you with the best services in a professional manner. Please feel free to contact us today, we are always waiting for your request to be fulfilled!
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