Transfer Pricing in the UAE: What Multinational Businesses Need to Know

The UAE Multinational Tax Guide indicates the historic role of the UAE as a hub for cross-border business with favorable tax results, advantageous geographic location, and a clear regulatory framework. The introduction of corporate tax and transfer pricing (TP) is an important consideration for foreign corporations operating in the UAE to align with international norms.

Transfer pricing provisions ensure that transactions between entities in a related group (i.e., parent and subsidiary) are conducted at arm’s length. For a multinational corporation, this means that the pricing of related-party transactions must reflect fair market value, rather than being artificially increased (or decreased) to mitigate tax exposures in either jurisdiction.

In this blog, we will cover the basics of transfer pricing rules and the UAE Multinational Tax Guide, their importance to multinational enterprises, and approaches that multinational companies can utilize to stay compliant moving forward.

Why Transfer Pricing Matters in the UAE

With the UAE’s global financial and tax ecosystems, compliance with the rules will become critical for multinational enterprises. Failure to comply could lead to loss of reputation, penalties, and frustration with tax authorities.

The crucial nature of transfer pricing in the UAE: what multinational businesses need to know is fundamentally threefold:

• Adherence to OECD Guidelines: The UAE is dedicated to adherence to the guidance of the Organization for Economic Co-operation and Development (OECD).
• Corporate Tax Structure: With the new 9% corporate tax in place, related-party transactions are subject to increased scrutiny.
• Investor Protection: Effective reporting inspires confidence from investors and regulators alike.

When businesses recognize transfer pricing, this can lead to operational ease, a diminished potential of conflicts with authorities, and increased openness.

Fundamental Transfer Pricing Principles in the UAE Multinational Tax Guide

To understand transfer pricing in the UAE: what multinational enterprises need to know requires knowledge of principles.

1. Arm’s Length Principle – Relations among parties must be established under the presumption that they were not connected parties to ensure fair and transparent transactions.

2. Transfer Pricing Methodologies – Companies must use methods accepted internationally, including:

• Comparable Uncontrolled Price (CUP) Method
• Cost Plus Method
• Resale Price Method
• Transaction Net Margin Method (TNMM)
• Profit Split Method

3. Documents – Multinational enterprises must have records, which may include:

• Local File
• Master File
• Country by Country Reporting (CbCR), if applicable, against larger Multinational Groups.

This process ensures transfer pricing in the UAE is in accordance with the best practices around the world.

Transfer Pricing in the UAE: What Multinational Entities Should Know Regarding Compliance

The concept of compliance is one of the most important aspects of transfer pricing in the UAE: what multinational entities need to know. There are many elements of compliance, including:

• Prepare Transfer Pricing Documentation: Properly prepared documents can support the pricing method that was used.
• Disclose Related Party Transactions: You must include related party transaction information in your tax return.
• Thresholds for CbCR: Multinational entities with consolidated group revenue over AED 3.15 billion must file a Country by Country Report.

If you comply with any relevant provisions, you lessen the risk of penalties while signaling a commitment to transparency and good governance.

The Specific Challenges of Transfer Pricing in the UAE Multinational Tax Guide

While the UAE has rules on the books, the landscape faces challenges faced by multinational companies. Understanding transfer pricing in the UAE: what multinational companies need to know reflects the unique aspects of compliance:

• Complex Group Structures: Multinational companies often transact with multiple subsidiaries and holding companies that add a layer of complexity to compliance.
• The Valuation of Intangibles: Valuing intellectual property, brand rights, or licenses is often difficult.
• Evolving Regulations: The UAE has relatively new transfer pricing laws that are still evolving at this point in time and will continue to evolve, so you must monitor them.
• Document in Action: The reality of actually preparing and maintaining the required files is time-consuming.

Navigating these challenges requires a proactive plan, functionality, and professional advisory services.

The Importance of Professional Advisors in the UAE Multinational Tax Guide

For multinational businesses, professional advisors play an important role in compliance efficiencies. Their services go beyond technical expertise, and they provide advisory services to mitigate risks accordingly.

The benefits include:

• Conducting transfer pricing studies to arrive at reasonable fair market values.
• Support with documentation preparation.
• Support with the dispute resolution with tax authorities.
• Ongoing monitoring of developments in rules as they may change.

With proper guidance, businesses will have the best chance they can have in transfer pricing in the UAE: what multinational businesses need to know without sacrificing their operations or profits.

Opportunities for Multinational Businesses:

While compliance may seem like a burden, transfer pricing in the UAE will also create opportunities.

• Increased Confidence: Transparent reporting increases credibility in the global marketplace.
• Decreased Risk: Proper documentation and support of the documentary process mitigate the risk of potential disputes.
• Increased Efficiencies: Assessing pricing can surface intra-group pricing inefficiencies that increase profitability.

As multinational businesses embrace the disciplines of transfer pricing, they position themselves with best practices globally and generate enhanced long-term sustainability.

Transfer Pricing Outlook in the UAE

As the UAE continues to better solidify its place as a global center, transfer pricing requirements are likely to become more stringent as well. Future trends may consist of:

• More stringent documentation.
• More cross-border coordination between revenue authorities.
• More focus on the digital economy and intangible property.
• More audits and enforcement.

These changes require foresight; transfer pricing in the UAE: what multinational businesses need to know provides this knowledge for long-term compliance and growth. Transfer pricing has transitioned from a technical consideration, to address, to an essential aspect of value creation for global assignees. For organizations operating in the UAE, compliance with transfer pricing regulations is essential to avoiding potential risks and building stakeholder trust.