October 2023 / United Arab Emirates

October 16 2023

UAE, Federal Tax Authority Publishes Tax Guide on Exempt Income

The Federal Tax Authority (FTA) has published the Tax Guide on Dividends and Participation Exemption Rules for Corporate Income Tax Purposes.

The Guide provides general guidance on the exemption of dividends and other profit distributions, as well as capital gains and certain income under the participation exemption rules, where a taxpayer holds a significant long-term interest in other legal entities. The Guide explains some of the terms and conditions in the Corporation Tax Law and covers the following:

  • the definition of dividends and other profit distributions;
  • the exemption of income and related expenses;
  • the persons entitled to the exemption;
  • the mechanisms of the participation exemption; and
  • the effects of the exemption on tax groups.

The Guide was published in the Official Gazette in October 2023.

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October 25 2023

Federal Tax Authority Clarifies Transfer Pricing Regime in UAE Through Issuance of Guidelines

The Federal Tax Authority has clarified the UAE transfer pricing (TP) regime by publishing guidelines. The guidelines aim to make the TP provisions of the regulations as effective as possible by providing general guidance on the TP regime. The guidelines provide the following:
  • an overview of the TP rules and procedures, including the determination of related party transactions, whether transactions are at arm's length, and other related compliance requirements, including TP documentation; and
  • assistance in answering the most common questions that businesses may have and helping to reduce TP uncertainty for those subject to the TP provisions of the corporation income tax (CIT).

The guidelines further aim to assist taxpayers to understand the provisions of the corporation tax regime, but such guidelines are not legally binding.

UAE TP rules apply not only to multinational groups, but to all transactions and arrangements with related parties within domestic groups. The arm's length principle must apply to all such transactions. In addition, transactions exceeding the materiality threshold set by an FTA ruling must be disclosed for TP documentation purposes.

Transfer Pricing Principles and Fundamentals

(a) Definition

The concepts of related parties setting the terms of their controlled transactions considering global economic developments and "related persons" setting the terms of their controlled transactions in a manner such as those that exist between independent parties in comparable entities in the UAE are defined in Ministerial Decision No. 97 of 2023 on TP of the CIT.

(b) Arm's Length Principle

The arm's length principle, introduced in the UAE by article 34 of the CIT, requires that transactions and agreements between related parties be valued as if they had been between independent parties in similar circumstances. In the application of the arm's length principle, each related party or associated person must have an operating profit commensurate with its respective functions, assets and risks and its contribution to the value chain within the group as a whole.

(c) Scope of Transfer Pricing Rules

The TP rules of the UAE apply to transactions or arrangements between persons that are deemed to be related parties or connected persons.

Exempt entities or entities that have elected for the small business relief, as well as standalone entities with no related party transactions are subject to transfer pricing rules and need to meet the arm's length principle in the case of controlled transactions. However, they are not required to prepare and maintain TP documentation.

The scope of the TP rules covers both related parties (article 35 of CIT) and controlled transactions.

Application of the Arm's Length Principle

The guidance sets out the application of the arm's length principle. The three key steps are as follows:

  • identification of related parties, related persons, transactions and arrangements and performance of a comparability analysis;
  • selecting the most appropriate TP method; and
  • determining the arm's length price.

The FTA's Guide to Transfer Pricing Rules for Corporate Tax Purposes was published in the Official Gazette in October 2023.

   
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October 9 2023

UAE, Federal Tax Authority Releases Non-Resident Persons Guide for Corporate Tax Purposes

The Federal Tax Authority (FTA) has released the non-resident persons guide for corporate tax purposes.

The guide aims to provide general guidance to natural and tax persons that are not considered resident persons for corporate tax purposes and that derive income from the United Arab Emirates so as to inform them whether they are taxed as non-residents in the United Arab Emirates.

The guide includes information on:

  • the concept of a "non-resident person" for corporate tax purposes in the United Arab Emirates;
  • the corporate tax obligations of a non-resident person; and
  • the income of a non-resident person subject to corporate tax in the United Arab Emirates.
 
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