Located entities can choose to form a fiscal group, provided that the following conditions are met:

1. The parent entity, which must be a tax resident in the UAE, directly or indirectly holds at least 95% of the share capital, the voting rights and the right to profits and net assets of the group's entities.
2. All entities in the group must share the same financial year and prepare their financial statements following the same accounting rules.
3. Neither the parent entity nor the subsidiaries should be exempt entities or Free Trade Zones for Special Qualification Companies (QFZP).

Once the fiscal group is constituted, the parent entity will be responsible for its administration, including the filing of the tax return and the liquidation of the group's tax debt.

Transfer Pricing

The Corporate Tax Act establishes detailed rules and regulations on transfer pricing. These provisions take effect immediately, coinciding with the date of implementation of the regulations related to corporate tax.

Principle of Full Competence

Both cross-border and domestic transactions, as well as agreements between related parties (including transactions carried out by entities in free zones), must adhere to the principle of full competition. This means that transactions must be carried out as if they were made between independent parties under comparable circumstances.

In addition, the payments and benefits provided to related parties must be determined at market value, which must be established by applying the principle of full competition.

Transfer Pricing Methods and Their Application

The Corporation Tax Act prescribes five methods for determining the fully competitive nature of transactions between related parties. These methods are in line with the OECD Transfer Pricing Guidelines.

In the event that the taxable person can demonstrate that none of the prescribed methods can be reasonably applied to a specific transaction, he is authorized to use any other method that is appropriate.

When applying the most appropriate method, the following factors must be considered, in accordance with the OECD Guidelines:

1. Contractual Conditions
2. Features of the Operation
3. Economic Circumstances
4. Functions, Assets and Risks
   
5. Business Strategies

Related Parties

The definition of related parties, in accordance with the Corporation Tax Act, is generally in line with the principles established in the previous public consultation document. The following is a summary of this definition:

1. Family Relationships: Two or more natural persons who are related up to the fourth degree of kinship.

2. Relationships between Individuals and Legal Entities: A natural person and a legal entity that are linked by ownership equal to or greater than 50% or by control.

3. Relationships between Legal Entities: Two or more legal entities that are linked by ownership equal to or greater than 50% or by control.

4. Permanent Establishments: A person and their permanent establishment (EP) or foreign permanent establishment.

5. Partners in Entities Not Incorporated as a Company: Partners of an entity not incorporated as a company.

6. Trust and Foundation Relationships: Trustee, founder, trustee or beneficiary of a trust or foundation and its related parties.

The term “control” is defined as the ability of one person to influence another, including the ability to:

• Exercise 50% or more of the voting rights
• Determine the composition of 50% or more of the Board of Directors.
• Receive 50% or more of the benefits.
• To have a significant influence on the conduct or affairs of another person.

The Corporation Tax Act does not clarify how “significant influence” should be interpreted, and additional guidelines are expected to be published that may refer to interpretations in accordance with accounting standards or other relevant guidance.

Related People

Any payment or benefit granted by a taxable person to a related person must meet the following requirements to be deductible:

1. Market Value: The payment or benefit must match the market value of the service or benefit provided. Market value must be determined by applying the principle of full competition.
2. Business Purpose: The payment or benefit must be made in full and exclusively for business purposes.

However, there are specific exclusions to this deductibility limitation for payments or benefits provided by:

• Listed Entities: A taxable person whose shares are traded on a recognized stock exchange.
• Regulated Entities: A taxable person who is subject to regulatory oversight by a competent state authority.
• Other Entities: Any other person or entity that is determined by an additional decision not yet published.

The definition of “related persons” is broadly aligned with the previously issued public consultation document, and includes:

• A natural person who directly or indirectly holds a stake in the property or control of the taxable person.
• An administrator or director of the taxable person.
• Partners of an entity not incorporated as a company.
• Any party linked to the persons mentioned above.

Transfer Price Adjustments

The taxable income of a taxable person can be adjusted by the Federal Tax Authority (FTA) if the results of transactions between related parties are not within the range of full competence.

In the event that the FTA or the taxable person makes an adjustment to the tax base, the authority will make the corresponding adjustment to the tax base of the related party participating in the transaction. In addition, if a foreign tax authority makes an adjustment, the taxable person can request a corresponding relief for that adjustment. New guidelines are expected to be issued on the precise mechanism for implementing these adjustments, which could include mutual agreement procedures or other relevant mechanisms.

Advance Price Agreement

The Corporate Tax Act gives taxpayers the option of requesting an Advance Price Agreement for existing or proposed transactions. The Federal Tax Authority (FTA) will provide detailed guidelines on the procedure and requirements for obtaining these agreements in future regulations.

Transfer Pricing Documentation

Taxable persons are required to keep documentation relating to transfer pricing, which must include a main file and a local file, under the following circumstances:

1. If the taxable person is part of a group of multinational companies with total consolidated revenues of the group reaching at least 3.15 billion AED in the relevant tax period.
2. If the taxable person has income of at least AED 200 million in a relevant tax period.

In addition, transfer pricing documentation requirements may apply to taxable persons, both in the mainland and in the Free Trade Zone, under the following conditions:

• The FTA may require the taxable person to file a disclosure form along with their tax return. This form should contain detailed information about transactions and agreements with related and related parties.
• The FTA may also ask the taxable person to, within 30 days, provide additional information to support compliance with the principle of full competition in transactions and agreements with related parties and related individuals.