Now’s the Time to Prepare for Transfer Pricing Regs in the United Arab Emirates8th March 2022
It’s no secret that transfer pricing compliance is becoming a focus in the Middle East. In the past few years, Egypt, Saudi Arabia, Qatar, and Jordan have all issued transfer pricing legislation to prevent base erosion and profit shifting, and while these countries aren’t members of the OECD, their regulations generally follow OECD guidelines. The United Arab Emirates (UAE) might be a little late to the party, but its new corporate tax regime, which was announced on January 31, includes an attractive 9% corporate tax rate and—you guessed it—official transfer pricing legislation.
Like its neighbors, the UAE’s transfer pricing regulations will largely coincide with OECD guidelines; however, the UAE takes a more holistic approach to transfer pricing compliance, focusing on economic substance and the reality of how the business operates. In fact, when evaluating transfer pricing compliance, the UAE will look beyond transfer pricing documentation and examine the corporate tax return, legal agreements, transfer pricing policies, processes, computations, and yes, transfer pricing documentation and benchmarking studies. In terms of documentation, taxpayers will be expected to prepare master and local files, and country-by-country reports, and like the rest of the world, the UAE’s Ministry of Finance will require MNEs to justify the rationale behind intragroup transactions. Thresholds haven’t been set yet, and transfer pricing documentation requirements may officially only apply to very large multinational companies. Still, smaller companies would be wise to document their transfer pricing positions, as any company—big or small—could be asked to explain them.