Corporate Tax Update – Thresholds for maintaining transfer pricing documentation announced
11 May 2023
The Ministry of Finance has Published a Ministerial Decision (No (97) of 2023), relating to the requirements for maintaining transfer pricing documentation.
The general requirements for transfer pricing under UAE corporate tax have previously been set out in the Tax Decree-Law and official guidance. These confirm that transfer pricing will be applicable to UAE corporate tax and that taxpayers will be required to maintain documentation in accordance with OECD guidelines, including Master File and Local File.
The Ministerial Decision provides detailed rules on these requirements and specifies that the master file and local file documentation must be maintained if:
- The Taxable Person has revenues in the relevant tax period of AED 200,000,000 or more; or
- The Taxable Person is part of a multinational group with total consolidated group revenue of AED 3,150,000,000 or more.
The decision also confirms the transactions that must be recorded in the local file. Transactions and arrangements with the following must always be included:
- A Non-Resident Person
- An Exempt Person
- A Resident Person that has made an election for small business relief
- A resident person whose income is subject to a different corporate tax rate from that applicable to the taxable person
Transactions and arrangements with the following must be excluded:
- Resident Persons other than those mentioned in the last three categories above
- A natural person, provided that the parties to the transaction or arrangement are acting as if they were independent of each other
- A juridical person that is considered to be a Related Party or a Connected Person solely by virtue of being a partner in an Unincorporated Partnership, provided that the parties to the transaction or arrangement are acting as if they were independent of each other
- A Permanent Establishment of a Non-Resident Person in the State whose income is subject to the same Corporate Tax rate as that applicable to the income of the Taxable Person.
BDO Comment
This Decision will provide a welcome relief for the SME sector. The thresholds announced in the Decision are very high compared with some other jurisdictions, reducing the transfer pricing compliance burden for smaller businesses.
The details of the transactions and arrangements to be included are also very interesting and helpful. They appear to exclude from the local file, any transactions that are unlikely to result in tax avoidance. This reduces the potential compliance burden associated with transfer pricing by excluding unnecessary reporting.
If you would like more information on this topic or assistance with any other corporate tax matter, please contact our tax team.