UAE: Transfer pricing implications with introduction of a corporate income tax regime

Transfer pricing issues anticipated when new corporate income tax system is introduced for financial years beginning on or after 1 June 2023.

Transfer pricing implications with introduction of a corporate income tax regime

The Ministry of Finance on 31 January 2022 made a breakthrough announcement that a new federal corporate income tax system will be implemented in the UAE, effective for financial years commencing on or after 1 June 2023.

The UAE will introduce a standard corporate income tax rate of 9%, and the corporate income tax regime is being designed to incorporate best practices globally and minimize the compliance burden on businesses. The new corporate income tax law is expected to levy corporate income tax on business profits made by UAE businesses, over the course of a tax accounting period.

Text and details about the corporate income tax law are expected to be issued in mid-2022. 

Transfer pricing implications

With the introduction of a corporate income tax, the OECD Transfer Pricing Rules would be applicable in the UAE.

All companies would have to comply with the transfer pricing rules and documentation requirements. These transfer pricing rules would be mandatory and could also be applicable to domestic transactions.

KPMG observation

While intercompany sales and financing services are common practice among UAE groups, previously, remuneration for these activities has not been on the forefront, given the transactions would likely be eliminated upon financial consolidation. The introduction of the new tax regime would be a “a game changer”—intercompany transactions would need to be undertaken at arm’s length and generally would need to be supported by appropriate documentation.  

Accordingly, businesses need to evaluate their current arrangements and consider implications of the corporate income tax regime on both cross-border as well as domestic transactions.

Read more about the plans on a dedicated corporate income tax webpage developed by the KPMG member firm in the United Arab Emirates.

 

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