Guide from Integrity Accounting Services on Transfer Pricing and Benchmarking
The United Arab Emirates (UAE) is set to enter a new era in its tax environment, with the introduction of corporate tax returns and a focus on transfer pricing. This shift presents both challenges and opportunities for businesses operating in the region.
One of the key challenges lies in finding reliable local data for benchmarking studies, particularly for niche industries. However, the Federal Tax Authority (FTA) advises businesses to start with domestic data before expanding their search to regional or global benchmarks. A well-prepared benchmarking report provides meaningful insights into a business's market position, safeguarding companies against potential penalties.
At the core of these new rules is the arm's-length principle, requiring related-party transactions to be priced as if with an independent third party. This principle emphasizes the importance of compliance in business strategy. Treating compliance as part of a company's strategy can help businesses thrive in the UAE's evolving tax environment.
Strengthening documentation is crucial in this new tax environment. Transfer pricing audits are on the horizon, making documentation a company's strongest defense. A proactive approach to transfer pricing can benefit companies in the UAE, ensuring they are well-prepared for these audits.
Refining structures is also important for navigating the new UAE tax environment. The FTA is responsible for monitoring transfer pricing policies and will be in charge of conducting transfer pricing audits in the future. Companies should review their structures to ensure they are compliant and aligned with market practices.
The UAE's focus on transfer pricing marks a significant shift for businesses that have operated in a tax-free environment. This change emphasizes the importance of accountability, a shift that may require businesses to rethink their strategies and operations.
The deadline for this transition is September 30, 2025. As the UAE prepares to file corporate tax returns for the first time, businesses must take a proactive approach to ensure they are well-prepared for this new tax environment. Navigating these changes successfully can provide businesses with a competitive edge, positioning them for success in the UAE's evolving economic landscape.
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