FINEX
The United Arab Emirates (UAE) has recently introduced a federal Corporate Tax (CT) law that will apply to all businesses and individuals conducting business activities under a commercial license in the UAE, including free zone businesses. The CT law will be effective for the financial years commencing on or after 01 June 2023 with a headline rate of 9%, one of the most competitive tax rates in the world¹².
The introduction of CT will have significant implications for business groups operating in the UAE, especially those with cross-border transactions or intra-group dealings. Such transactions may be subject to transfer pricing rules, which aim to ensure that the profits of related parties are allocated in accordance with the arm’s length principle, i.e., the price that would have been agreed by independent parties under comparable circumstances.
Transfer pricing rules are widely adopted by many countries around the world as a means of preventing tax avoidance and ensuring a fair distribution of tax revenues among jurisdictions. The UAE has not yet issued specific transfer pricing regulations, but it is expected that it will do so in the near future, following the international standards and best practices.
Therefore, business groups in the UAE should start preparing for the new CT regime and its potential impact on their transfer pricing policies and practices. Here are some essential strategies that can help them navigate the transfer pricing challenges in the UAE:
Conduct a transfer pricing risk assessment: Business groups should identify and assess their existing and potential transfer pricing risks, such as whether their intercompany transactions are at arm’s length, whether they have adequate documentation to support their transfer pricing positions, whether they are exposed to double taxation or penalties in case of a tax audit or dispute, etc.
Review and update their transfer pricing policies: Business groups should review and update their transfer pricing policies to ensure that they are aligned with the new CT regime and reflect the economic substance and value creation of their intercompany transactions. They should also consider adopting appropriate transfer pricing methods and benchmarks to determine arm’s length prices for their transactions.
Prepare and maintain transfer pricing documentation: Business groups should prepare and maintain robust transfer pricing documentation to demonstrate that their intercompany transactions are at arm’s length and comply with the applicable tax laws and regulations. They should also follow the relevant documentation standards and requirements that may be issued by the UAE authorities in due course.
Seek advance certainty and dispute resolution: Business groups should seek advance certainty and dispute resolution mechanisms to avoid or resolve any potential transfer pricing disputes with the UAE tax authorities or other jurisdictions. They should also monitor the developments and updates on the transfer pricing rules and guidance in the UAE and other relevant countries.
By following these strategies, business groups in the UAE can effectively manage their transfer pricing risks and opportunities in the face of the new CT regime. They can also enhance their tax compliance and governance, as well as their reputation and competitiveness in the market.
Source: finexcube.com
According to the Article 40 of the UAE Corporate Tax Law deals with Tax Groups. A Tax Group is when two or more Taxable Persons are treated as a single Taxable Person. This is subject to certain conditions to be satisfied as laid down under Article 40 of the UAE Corporate Tax Law.
Source: Finexcube.com
Source: Finexcube.com
Source : Finexcube.com
Source: Finexcube.com
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