Not all businesses in the UAE are required to comply with the full scope of transfer pricing documentation and reporting requirements. The Federal Tax Authority (FTA) has established specific thresholds to determine the applicability of these obligations, ensuring that smaller entities are not overburdened. Below is a detailed breakdown of these thresholds:
a. Related-Party Transactions Threshold
The UAE’s Corporate Tax Law requires businesses to disclose related-party transactions if the total value of such transactions exceeds a specified monetary threshold within a financial year. As of 2025, the threshold is typically:
• AED 3 million or more for all related-party transactions in aggregate.
If a business’s total related-party transactions exceed this limit, it must disclose these transactions in its corporate tax return using the FTA’s prescribed disclosure form.
b. Transfer Pricing Documentation Thresholds
For businesses that meet the related-party transactions threshold, the additional requirement to prepare and maintain transfer pricing documentation (Master File and Local File) applies only if one or both of the following thresholds are met:
1. Annual Revenue Threshold:
• If the business’s consolidated annual revenue exceeds AED 200 million, it must maintain both a Master File and a Local File in compliance with the OECD Transfer Pricing Guidelines.
2. Transaction-Specific Thresholds:
• Certain types of related-party transactions, such as financing arrangements, intellectual property transfers, or high-value intercompany service agreements, may be subject to documentation requirements even if the overall revenue threshold is not met. The FTA specifies transaction-specific thresholds in its detailed guidelines.
c. Exemptions for Small and Medium Enterprises (SMEs)
To support SMEs and reduce their compliance burden, businesses below the annual revenue or related-party transaction thresholds are typically exempt from preparing detailed transfer pricing documentation. However, they are still required to disclose related-party transactions in their corporate tax returns if the transactions exceed AED 3 million.
d. Free Zone Entities
Entities operating in free zones that claim tax incentives or benefits must comply with transfer pricing requirements if they conduct related-party transactions with entities outside the free zone or within the mainland. Thresholds for applicability are generally consistent with those for mainland entities.
e. Aggregation Rule
When determining whether thresholds are met, the FTA applies an aggregation rule. This means that all related-party transactions, regardless of type or category, are combined to assess whether the total exceeds the threshold. For example, payments for services, interest on loans, and royalties must be aggregated to determine compliance obligations.
Key Implications of Thresholds
1. Increased Scrutiny for Large Multinationals: Businesses that exceed the revenue and transaction thresholds are required to prepare comprehensive documentation, which is likely to undergo greater scrutiny during audits.
2. Simplified Requirements for SMEs: SMEs below the thresholds benefit from simplified compliance obligations, focusing primarily on transaction disclosure.
3. Dynamic Updates: The FTA may revise thresholds periodically, so businesses must stay informed about regulatory updates to ensure continued compliance.
Understanding these thresholds is crucial for UAE businesses to assess whether they need to comply with transfer pricing documentation and reporting requirements. Failure to meet these obligations could result in penalties or tax adjustments, even for entities operating below certain thresholds.
By proactively evaluating your related-party transactions and monitoring your financial thresholds, you can ensure compliance and avoid unnecessary risks.
DISCLAMER: The above text should not be treated as the tax advise you may rely on. Please consult with your tax advisor to address your own facts and circumstances.
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