The UAE Minister of Finance has clarified the requirements for maintaining transfer pricing documentation for corporate tax purposes. The clarification provides that taxpayers who meet one of the following conditions must maintain both a master file and a local file for the relevant tax period:
- at any time during the relevant tax period, the taxpayer is a member of a multinational group of companies with a total consolidated group turnover in the relevant tax period of AED 3.15 billion or more; and
- the taxpayer's turnover in the relevant tax period is at least AED 200 million.
The local file includes transactions or arrangements with the following persons:
- a non-resident person;
- an exempt person;
- a resident person who has made an election for small business relief; and
- a resident whose income is subject to a rate of corporate income tax different from the rate applicable to the income of the taxpayer.
In addition, the clarification provides that the taxpayer shall not include in the local file transactions or arrangements with the following related parties and connected persons:
- resident persons other than a non-resident person, an exempt person, a resident person who has made an election for small business relief, and a resident person whose income is subject to a corporate tax rate different from that applicable to the income of the taxpayer;
- an individual, provided that the parties to the transaction or arrangement act as if they were independent;
- a legal person that is a related party or connected person solely by virtue of being a partner in an unincorporated partnership, provided that the parties to the transaction or arrangement act as if they were independent; and
- a permanent establishment of a non-resident person in the UAE, the income of which is subject to the same rate of corporate tax as that applicable to the income of the taxpayer.
The decision states that the parties to the transaction or arrangement will be deemed to be acting as if they were independent of each other if both of the following conditions are met:
- the transaction or arrangement is carried out in the ordinary course of business; and
- the parties are not dealing exclusively or almost exclusively with each other.
The Ministry of Finance's Clarification No. 97 of 2023 on transfer pricing documentation requirements for corporate income tax purposes was issued on 27 April 2023.
The ministerial decision is available on UAE Ministry of Finance website: Ministerial Decision No. 97 of 2023