There are currently no requirements for businesses to prepare and maintain transfer pricing documentation. However, new document requirements apply pursuant to the enactment of the federal corporate tax regime effective 1 June 2023.
Disclosure Requirements
The tax authorities may require taxpayers to submit a disclosure along with their tax return that provides information about their transactions and arrangements with related parties and connected persons.
Standard Documentation
Taxpayers must provide the tax authorities with information supporting the arm's length nature of transactions or arrangements entered into with their related parties and connected persons within 30 days following a request by the tax authorities or by any other later date as directed by the tax authorities.
Master File
Taxpayers must maintain a Master file for supporting transactions with their related parties and connected persons. The Master file must be submitted to the tax authorities within 30 days following a request or by any other later date as directed by the tax authorities.
The threshold and format of the Master file are yet to be prescribed by the tax authorities.
Local File
Taxpayers must maintain a Local file for supporting transactions with their related parties and connected persons. The Local file must be submitted to the tax authorities within 30 days following a request or by any other later date as directed by the tax authorities.
The threshold and format of the Local file are yet to be prescribed by the tax authorities.
Country-by-Country (CbC) Reporting
The UAE introduced country-by-country reporting (CbCr) requirements by Resolution No. 32/2019, subsequently amended by Resolution No. 44/2020, which are in line with BEPS Action 13. The requirements apply to reporting fiscal years beginning on or after 1 January 2019. The requirement to submit a CbC report primarily applies to ultimate parent entities of MNE groups resident in the UAE that meet an annual consolidated group revenue threshold of AED 3.15 billion in the previous year.
The UAE has not imposed secondary local filing of CbC reports by UAE constituent entities of foreign-parented MNE groups. Further, CbC notification requirements are limited to ultimate parent entities resident in the UAE and do not apply to UAE constituent entities. The notification must include a confirmation that the notifying entity is a resident ultimate parent entity of the MNE Group to which the CbC reporting requirements apply, and other details of such entity, including its trade license number, address, business activity, and year-end.
The contents of the CbC report includes the following for each jurisdiction:
- Table 1:
- tax jurisdiction;
- revenues (unrelated parties, related parties, and total);
- profit (loss) before tax;
- income tax paid (cash basis);
- income tax accrued - current year;
- stated capital;
- accumulated earnings;
- number of employees; and
- tangible assets - other than cash and cash equivalents;
- Table 2:
- tax jurisdiction;
- constituent entities resident in each tax jurisdiction (including Tax ID and address);
- jurisdiction of organization or incorporation if different from jurisdiction of residence; and
- main business activities of each constituent entity;
- Table 3:
- additional information or explanation deemed necessary to understand the CbC report.
The CbC report is due within 12 months following the close of the tax year, and the CbC notification is required to be filed by the end of the reporting year. Both the CbC report and the notification are required to be filed electronically via an online portal.
The CbC report is required to be prepared in accordance with the model included in the regulations and to be submitted in XML format by the ultimate parent entity. Taxpayers are required to enroll on the CbCr portal for CbC filings. Additional information is available on the Country-by-Country reporting webpage of the Ministry of Finance, which includes frequently asked questions and information on CbC report filing and CbC notifications. Further, in November 2020, UAE published guidance on the preparation and submission of CbC Reports and notifications.
The tax authorities can request additional information and records to:
- Ascertain whether the information provided in a CbC report is correct and complete;
- Ensure that the information not included in a CbC report was properly omitted; and
- Examine the procedures put in place by a reporting entity to ensure compliance with the CbC reporting obligations.
Reporting entities are required to maintain records for a period of 5 years following the date on which the CbC report is submitted.
The UAE is a non-reciprocal jurisdiction. Consequently, it will exchange CbC reports filed by UAE ultimate parent companies with other countries but will not itself receive from those other countries CbC reports filed therein by their own ultimate parent companies with UAE constituent entities.
Language of Documentation
The CbC report is required to be submitted in English.
Starting 1 June 2023, it is anticipated that the language of the standard transfer pricing documentation that must be maintained will also be English.
Penalties
Non-compliance with the reporting obligations may result in the following penalties:
- Failure to submit CbC report or CbC notification within the due date attracts a penalty of AED 1 million plus AED 10,000 per day (with a maximum of AED 250,000);
- Failure to report complete and accurate information attracts a penalty of AED 50,000 to AED 500,000; and
- Failure to retain documentation and information for 5 years or to provide information when requested attracts a penalty of AED 100,000.
However, other than the penalty for failure to report/ notify, the total penalties are capped at a maximum of AED 1 million in a reporting year.
No specific penalties for non-compliance with transfer pricing rules are prescribed under the new federal corporate tax regime, and the already existing penalties are expected to continue to apply.