UAE Corporate Tax: Defining Connected Persons, Related Parties Under Transfer Pricing
The proposed UAE corporate tax regime has a provision for transfer pricing to ensure that the price of a transaction is not influenced by the relationship between the parties involved. The corporate tax regime in the UAE will apply the arm’s length principle to transactions and arrangements between related parties and with connected persons. Understanding the definitions of related parties and connected persons is essential for businesses to ensure compliance with corporate tax in the UAE. Consulting with corporate tax consultants in the UAE can help you to navigate the challenges of transfer pricing rules.
In this article, we will enlighten you on the key aspects of transfer pricing rules under the proposed corporate tax in the UAE. However, it must be remembered that the UAE is yet to issue a Corporate Tax Law. Therefore, it is advisable to make tax decisions once the UAE Corporate Tax Law is issued. Read ahead to know about the transfer pricing rules, especially the differences between connected persons and related parties:
Who Are Related Parties as Per the UAE Corporate Tax Regime?
Under the UAE corporate tax regime, a related party signifies an individual or entity having a pre-existing relationship with a business that is within the scope of the corporate tax through ownership, control or kinship (in the case of natural persons). Corporate tax advisors in Dubai can advise you on how to determine whether two entities are related parties or not. You can use the following rules to determine whether two parties involved in a transaction are related parties or not:
- Two or more individuals who are related through the fourth degree of kinship/affiliation such as relationship by birth, marriage, adoption or guardianship
- An individual and a legal entity where alone, or together with a related party, the individual directly or indirectly owns a 50% or greater share in, or controls, the legal entity
- Two or more legal entities where one legal entity alone, or together with a related party, directly or indirectly owns a 50% or greater share in, or controls, the other legal entity
- Two or more legal entities if a taxpayer alone, or with a related party, directly or indirectly owns a 50% share of each or controls them
- A taxpayer and its branch or permanent establishment
- Partners in the same unincorporated partnership
- Exempt and non-exempt business activities of the same person
Who Are Connected Persons as per the UAE Corporate Tax Regime?
Connected Persons will be treated as different from Related Parties under the corporate tax in the UAE. The following rules will help you to determine whether a person is connected to a business which falls within the scope of the corporate tax regime in the UAE:
- An individual who directly or indirectly has an ownership interest in, or controls, the taxable person
- A director or officer of the taxable person
- An individual related to the owner, director or officer of the taxable person to the fourth degree of kinship or affiliation, including by birth, marriage, adoption or guardianship
- Where the taxable person is a partner in an unincorporated partnership, any other partner in the same partnership
- A Related Party of any of the above
Arm’s Length Principle
The UAE corporate tax regime has adopted the Arm’s Length Principle for transfer pricing rules as set out in the OECD Transfer Pricing Guidelines. All the related party transactions with connected persons must comply with transfer pricing rules and the arm’s length principle. The Arm’s Length Principle must be determined using one of a set number of internationally recognised transfer pricing methods. Another method can also be used if a business can show that the specified methods cannot be reasonably applied to determine an arm’s length result. Corporate tax advisors in Dubai can help you to apply the Arm’s Length Principle properly.
Transfer Pricing Documentation Requirements
Businesses will need to submit a disclosure with information on their transactions with Related Parties and Connected Persons. Businesses will be required to maintain a master and local file where the Arm’s Length value of their Related Party transactions exceeds a certain threshold in the relevant tax period. However, the format and content of the file should be consistent with the requirements prescribed under OECD BEPS Action 13.
Consult with the Best Corporate Tax Advisors in Dubai, UAE
The transfer pricing rules may appear to be complex for businesses for which they can seek the advice of the best corporate tax advisors in Dubai such as Jitendra Chartered Accountants (JCA). JCA has a dedicated team of corporate tax consultants in Dubai who will look into your corporate tax requirements and offer customised solutions. Our services at JCA as Corporate Tax Consultants include CT Assessment & Advisory Services (one-time or retainer basis), CT Compliance Services & CT Agent Services to Represent to Federal Tax Authority (FTA) of UAE in case of any notices served by FTA. Ensure corporate tax compliance and avoid relevant penalties by availing of JCA’s corporate tax services in Dubai, UAE. Talk to our consultants for tax solutions that you can count on.