As part of the UAE’s Corporate Tax Law, the Transfer Pricing (TP) requirements are now a key component of corporate tax returns, supporting transparency in transactions between related entities. Two main TP schedules—Related Party Transaction Schedule and Connected Person Schedule—require detailed transaction reporting to confirm arm’s length pricing.
Related Party Transaction Schedule
This schedule should be completed by all Taxable Persons where the aggregate value of all transactions with all Related Parties recorded in the Financial Statements or at Market Value exceeds AED 40 million.
Once this threshold is exceeded each transaction type exceeding AED 4 million should be disclosed. Categories include goods, services, intellectual property, assets, and liabilities. Intercompany dividends should not be taken into account nor disclosed in this schedule. In the schedule, gross income (Revenue) and expenditure should be reported separately. Figures are required for each Related Party in aggregate by type of income and/or expenditure.
For each reportable transaction, companies must specify the arm’s length value, ensuring pricing comparable to independent market conditions. To confirm alignment, entities need to apply and specify transfer pricing methods like the Comparable Uncontrolled Price (CUP), Resale Price, Cost-Plus, Transactional Net Margin, or Profit Split method.
Key Information for Each Transaction to be disclosed:
- Related Party Name and Tax Residence.
- Transaction Type (goods, services, IP, etc.).
- Gross Income/Expenses and Arm’s Length Value for comparability.
- Tax Adjustment: Automatically calculated based on differences between gross income and arm’s length pricing, with adjustments approved by the Federal Tax Authority (FTA) required for downward adjustments in taxable income.
Connected Persons Schedule
The Connected Persons Schedule is specific where the aggregate payment or benefit exceeds AED 500,000 per Connected Person (together with its Related Parties), covering key connected transactions under Article 36 of the Corporate Tax Law. Each transaction must include the service description, payment or benefit value, and market value equivalent. The FTA requires companies to report any discrepancies and adjustments if the connected party price is not aligned with market standards.
Importance of Transfer Pricing Compliance:
These schedules ensure that intercompany transactions follow arm’s length principles, fostering compliance with UAE’s TP framework. Accurate reporting supports the FTA’s objective of reducing profit shifting and tax base erosion, making Transfer Pricing a cornerstone of UAE’s corporate tax regime.
Why Adherence to Transfer Pricing in the UAE Matters
For UAE businesses, these schedules help mitigate tax risk, ensuring compliance with the UAE’s tax transparency goals. Companies should consult the FTA Corporate Tax Guide for detailed guidance on UAE’s TP disclosures and maintain accurate records for both related-party and connected-person disclosures. This alignment with global TP standards fortifies UAE’s position in international trade and economic compliance.
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