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Business process solutions
We can help you identify, understand and manage potential risks to safeguard your business and comply with regulatory requirements.
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Business risk services
The relationship between a company and its auditor has changed. Organisations must understand and manage risk and seek an appropriate balance between risk and opportunities.
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Forensic and investigation services
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Mergers and acquisitions
Globalisation and company growth ambitions are driving an increase in M&A activity worldwide. We work with entrepreneurial businesses in the mid-market to help them assess the true commercial potential of their planned acquisition and understand how the purchase might serve their longer- term strategic goals.
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Recovery and reorganisation
Workable solutions to maximise your value and deliver sustainable recovery
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Transactional advisory services
We can support you throughout the transaction process – helping achieve the best possible outcome at the point of the transaction and in the longer term.
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Valuations
We provide a wide range of services to recovery and reorganisation professionals, companies and their stakeholders.
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IFRS
The International Financial Reporting Standards (IFRS) are a set of global accounting standards developed by the International Accounting Standards Board (IASB) for the preparation of public company financial statements. At Grant Thornton, our IFRS advisers can help you navigate the complexity of financial reporting from IFRS 1 to IFRS 17 and IAS 1 to IAS 41.
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Audit quality monitoring
Having a robust process of quality control is one of the most effective ways to guarantee we deliver high-quality services to our clients.
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Global audit technology
We apply our global audit methodology through an integrated set of software tools known as the Voyager suite.
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Corporate and business tax
Our trusted teams can prepare corporate tax files and ruling requests, support you with deferrals, accounting procedures and legitimate tax benefits.
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Direct international tax
Our teams have in-depth knowledge of the relationship between domestic and international tax laws.
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Global mobility services
Through our global organisation of member firms, we support both companies and individuals, providing insightful solutions to minimise the tax burden for both parties.
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Indirect international tax
Using our finely tuned local knowledge, teams from our global organisation of member firms help you understand and comply with often complex and time-consuming regulations.
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Dynamic businesses must continually innovate to maintain competitiveness, evolve and grow. Valuable tax reliefs are available to support innovative activities, irrespective of your tax profile.
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Private client services
Our solutions include dealing with emigration and tax mitigation on the income and capital growth of overseas assets.
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Transfer pricing
The laws surrounding transfer pricing are becoming ever more complex, as tax affairs of multinational companies are facing scrutiny from media, regulators and the public
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Tax policy
Tax policies are constantly evolving and there are a number of complex changes on the horizon that could significantly affect your business.
Please click on each section to expand further:
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In May 2018, the UAE joined the Organisation for Economic Co-operation and Development (“OECD”) Inclusive Framework on Base Erosion Profit Shifting (“BEPS”) and committed to implement the following four BEPS minimum standards Actions:
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Action 5: Countering harmful tax practices.
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Action 6: Countering tax treaty abuse.
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Action 13: Country-by-country (CbC) reporting.
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Action 14: Improving dispute resolution mechanisms.
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In response to UAE’s commitment to align with the OECD objectives, the Ministry of Finance ('MoF') in the UAE through its Cabinet of Ministers Resolution No. 31 of 2019 as amended by Cabinet Decision No. 57 introduced the Economic Substance Regulations (“ESR”) on 30 April 2019. The purpose of the ESR is to ensure that UAE entities undertaking certain activities report actual profits that are commensurate with the economic activity undertaken within the UAE.
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The UAE also introduced Country-by-Country Reporting (“CbCR”) rules for multinational group of enterprises (“MNE”) under the Cabinet Resolution No. 32 (“CR 32”) in 2019. However, CR 32 was superseded by Cabinet Decision No. 44, published in 2020. The UAE CbCR rules are broadly consistent with the OECD Model Legislation. UAE-resident Ultimate Parent Entities (“UPE”) are required to submit a UAE CbCR notification by the last day of the financial year and submit a CbC Report no later than 12 months after the financial year end. Constituent Entities in the UAE, who are members of a foreign headquartered MNE are not required submit a CbCR notification.
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Following the above CbCR regulations, the UAE MoF has activated a number of exchange mechanisms with other tax authorities and competent authorities. The UAE filed CbCR will be shared by the MoF with the relevant competent authorities who along with the MoF can review the CbCR for the following purposes:
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Assessing high-level transfer pricing risks.
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Assessing other base erosion and profit shifting related risks for economic and statistical analysis
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On 24 June 2018, UAE became a signatory to the Multilateral Competent Authority Agreement on the exchange of Country-by-Country Reports.
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On 28th April 2022, the MoF issued a Public Consultation Document (‘PCD’) on the proposed introduction of Corporate Taxes in the UAE. The PCD also includes a chapter on the proposed treatment under the UAE Corporate Tax regime for transactions between related parties i;e. the introduction of Transfer Pricing.
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The Corporate Tax and Transfer Pricing regime shall be effective for financial years starting on or after 01 June 2023.
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The PCD states a definition of ‘Related Party’ and ‘Connected Persons’ to whom such Transfer Pricing legislation shall be applicable.
- The PCD summarises the rules for determining ‘Related Parties’, the said rules are provided as under:
- Two or more individuals related to the fourth degree of kinship or affiliation, including by birth, marriage, adoption or guardianship
- An individual and a legal entity where alone, or together with a related party, the individual directly or indirectly owns a 50% or greater share in, or controls, the legal entity
- Two or more legal entities where one legal entity alone, or together with a related party, directly or indirectly owns a 50% or greater share in, or controls, the other legal
- Two or more legal entities if a taxpayer alone, or with a related party, directly or indirectly owns a 50% share of each or controls them
- A taxpayer and its branch or permanent establishment
- Partners in the same unincorporated partnership
- Exempt and non-exempt business activities of the same person
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In addition to the definition of ‘Related Party’, the PCD also casts a wider net to cover ‘Connected Persons’ under the ambit of the Transfer Pricing framework. The intent to include such persons under framework is to avoid tax base erosion by the individual owners of taxable businesses from UAE.
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In absence of a personal income taxation in the UAE, the individual may generate incentives by making excessive payments to themselves or persons connected with them.
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Accordingly, the term ‘Connected Persons’ has been introduced to cover the below persons:
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An individual who directly or indirectly has an ownership interest in, or controls, the taxable person
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A director or officer of the taxable person
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An individual related to the owner, director or officer of the taxable person to the fourth degree of kinship or affiliation, including by birth, marriage, adoption or guardianship
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Where the taxable person is a partner in an unincorporated partnership, any other partner in the same partnership
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The PCD states a few conditions for allowing deductibility of any payments / benefits provided to Connected Persons:
Any payments / benefits provided by a business to its Connected Persons will be deductible only if the business can demonstrate that the payment / benefit corresponds with the market value of the services provided and the same is incurred wholly and exclusively for the purpose of a taxpayer’s business.
- The PCD states that all the transactions with Related Party and Connected Persons will need to comply with the Transfer Pricing rules and the arm’s length principle set out in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations [‘OECD Guidelines’].
- However, the final rules and regulations governing the framework of Transfer Pricing in the UAE is yet to be published by the Ministry of Finance.
- The PCD provides that for the application of the arm’s length principle, internationally recognised Transfer Pricing methods shall be used.
- No self-assessment regime from a Transfer Pricing perspective is currently in place in the UAE. However, considering the proposed introduction of the Corporate Tax and Transfer Pricing in UAE, , it is recommended that the value of supply or import of services between Related and Connected Parties should be equal to the market value/ at arm's length even though the final legislation is yet to be published..
- The PCD states that the businesses may be required to submit a disclosure containing information regarding their transactions with Related Party and Connected Persons.
- The CbCR regulations in the UAE are effective from fiscal years starting on or after 1 January 2019 for multinational groups with revenues over AED 3.15 billion (approx. USD 858 million).
- The notification must be submitted by the UAE-tax resident UPE, on behalf of the UAE Constituent Entities, to the UAE MoF to indicate that it is the entity responsible for submitting the CbC Report and identifying the UAE Constituent Entities no later than the last day of the group's reporting year.
- The CbC Report shall be filed within 12 months following the end of reporting fiscal year of the MNE in line with the standard template set out at in Annex III of Chapter V of the OECD Transfer Pricing Guidelines.
- The PCD states that the businesses will need to maintain a Master File and Local File (with format and content consistent with the requirements prescribed under OECD BEPS Action 13).
- Multinational companies engaged in intragroup transactions which do not maintain a formal Transfer Pricing policy consistent with the arm’s length principle may be exposed to increased scrutiny once the Transfer Pricing regulations kick in.
Maintenance of appropriate back-up internal documentation will become critical. The taxpayers must therefore start to devise internal framework surrounding the preparation and maintenance of back up documents for their intra group transactions.
- Non-compliance with CbCR and Notification requirements can draw penalties ranging from AED 10,000 to AED 1,000,000.
- An administrative fine ranging from AED 10,000 to AED 300,000 can be imposed for non-compliance with ESR requirements.
- The taxpayers can expect some guidance around any penalties that may be levied under the proposed Corporate Tax laws and regulations if there is a failure on part of taxpayers to maintain contemporaneous Transfer Pricing documentation.
- No APAs, dispute avoidance and resolution guidance in the UAE.
- The PCD states that a business shall need to maintain a Master File and Local File if the arm’s length value of the related party transactions exceeds a certain threshold in the relevant tax period. However, the final rules and regulations providing such threshold for applicability is yet to be published by the MoF.
- Multinational companies which do meet the revenue threshold for UAE CbCR purposes i.e. Consolidated Group Revenue of AED 3.15 billion during the preceding financial year, are not required to comply with the CbCR legislation in the UAE.
- UAE businesses that are directly or indirectly at least 51 percent owned by the Federal or an Emirate Government, or a UAE Government body or authority, are exempt from the UAE ESR.
- The concept for Corporate Tax and Transfer Pricing as discussed in the PCD provides a high-level overview of the final legislation that is intended to be rolled out in UAE.
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The UAE MoF takes into consideration the impact of COVID-19 on usual operations of Licensees when deciding whether a Licensee has demonstrated sufficient economic substance in the UAE. In the past year, we have witnessed increased number of queries and audits carried out by the Federal Tax Authority for UAE in-scope businesses. Considerations apply with respect to those substance requirements that are directly affected by COVID-19 measures (e.g., travel restrictions, self-isolation situations or quarantine requirements). We have also seen that considerations were given to the impact of restrictions on the ability of Licensees to demonstrate an ability to meet the requirements of the “directed and managed” test (Article 6.2(b), ESR).
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Licensees must retain the requisite records to demonstrate adjustments made to their normal operating procedures in response to COVID-19. This is only a temporary arrangement and are therefore urged to make every effort to otherwise comply with their obligations under the ESR (including filing deadlines).
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No COVID-19 considerations apply to CbCR regulations.
For further information on transfer pricing in the United Arab Emirates please contact:
Steve Kitching |
Nimesh Malik |
Manasi Raval |
Shreya Verma |