The United Arab Emirates (UAE) government is extending a helping hand to mid-sized companies with new “transfer pricing” updates related to corporate tax compliance. The move will offer much-needed flexibility to businesses with revenues of up to Dh200 million and cross-border dealings with associate entities, who are building up their revenues but may face significant challenges complying with regulations.
On Thursday, the UAE’s Ministry of Finance issued guidelines on transfer pricing, which is one of the most complex areas within the tax regime. It governs dealings between group entities, where the owners or directors have shared interests or are part of a multinational with extensive business arrangements between them.
The new guidance means that mid-sized firms with revenues of up to Dh200 million will be exempt from maintaining “master files” and “local files,” which are typically required to document the transfer pricing policies of multinational companies. The move is expected to ease the compliance burden on these companies and help them avoid penalties for non-compliance.
Transfer pricing is a significant issue for multinational corporations, which often use it to allocate profits and expenses between different countries in order to minimize their tax liabilities. However, it can be a complex and often contentious issue, particularly when there are disagreements over the value of goods and services being transferred between different entities.
The UAE has been working to strengthen its corporate tax regime in recent years, with the introduction of a 5% value-added tax (VAT) in 2018 and the implementation of new corporate tax rules earlier this year. The new rules require companies to maintain detailed records of their financial transactions and to file annual tax returns, with penalties for non-compliance.
However, the UAE has also been careful to ensure that the new rules do not place an undue burden on small and mid-sized businesses, which are seen as key drivers of economic growth and job creation in the country. The decision to exempt mid-sized firms from certain transfer pricing requirements is a clear example of this policy in action.
The move has been welcomed by business groups, who say that it will provide a much-needed boost to mid-sized firms at a time when many are struggling to cope with the economic fallout of the Covid-19 pandemic. “This is a welcome move that will help support small and mid-sized businesses, which are the backbone of the UAE economy,” said one industry representative.
Transfer pricing can be a complicated issue, especially for mid-sized companies that may not have the resources to comply with the regulations. The UAE’s decision to offer flexibility to these businesses will be particularly helpful, as it will allow them to focus on growing their operations while still remaining compliant with the law.
In addition to the changes to transfer pricing, the UAE has also made other updates to its corporate tax regime. For example, it has reduced the tax rate for certain companies in certain industries. This will help those businesses to remain competitive and continue to grow, while still contributing to the economy.
Overall, the UAE’s efforts to create a tax-friendly environment for businesses of all sizes and industries are a positive step. By offering flexibility and reducing tax rates where necessary, the government is supporting the growth of the economy and helping businesses to thrive. This will benefit everyone in the long run, as a strong and vibrant business sector is essential for the country’s continued prosperity.
The UAE’s corporate tax regime is still relatively new, and there are likely to be further changes and updates in the years ahead as the country seeks to balance the need to generate revenue with the need to attract foreign investment and support local businesses. However, for now, mid-sized firms can breathe a sigh of relief knowing that they will be able to comply with the new rules without facing excessive compliance costs.
