New taxes for multinational companies in the UAE

The recent taxes for multinational companies in the UAE are generating a lot of reaction. Some fear a loss of competitiveness, while others welcome a step towards greater tax fairness. The precise details of this reform are yet to be determined, but it is sure to make waves in the business community.

The UAE is a country that attracts businesses because it does not pay corporate income tax, but there is a 5% value added tax. They have signed agreements to exchange tax information with other countries and have rules for companies to report their taxes country by country.

An update on taxes for multinational companies in the UAE

The United Arab Emirates has updated its rules on taxation in the country for multinational companies subject to corporate taxes.

This decision made by the Ministry of Finance specify that companies must be clear when assessing parties. According to the Ministerial Decision No. (97) of 2023, the Ministry required companies to keep certain documents including transfer pricing in order to ensure the transfer pricing and transaction rules, especially to establish that their exchanges with affiliated entities and related persons have been conducted in accordance with fair competition standards.

In order to aim for transparency and equality in the UAE tax system, the Federal Decree Law No. (47) of 2023 of the Multinational Corporation Tax in the UAE that targets the transaction and pricing rules for companies contribute to the smooth functioning of their relationship.

“The transfer pricing documentation requirements are intended to ensure that taxpayers can prove that their transactions with related parties and connected persons were conducted at arm’s length, using standardized records.” said Younis Haji Al Khouri, undersecretary at the Ministry of Finance

The undersecretary includes that these latest requirements on transfer documents are a good thing since they will help the interest of companies on their tax system by enhancing economic growth and competitiveness of the country on international trade.

Companies with a turnover of at least AED 200 million or approximately EUR 50 million, or if they are part of a subsidiary of a group with a turnover of at least AED 3.15 billion or approximately EUR 785 million, over the course of the tax period must keep transfer pricing documentation in local and master files.

No taxes in the UAE?

The UAE is known for its very attractive tax regime for companies wishing to do business in the country, with its absence of tax on local companies. However, this is not the same case for multinational companies, as they are subject to a 5% VAT tax for the last five years.

The UAE has signed agreements with other countries to share tax information to avoid taxes in addition to increasing taxation.

The UAE has adopted the OECD rules for multinational companies with subsidiaries in the UAE. This means that these companies must report their sales, profits, taxes paid and other information for each country in which they operate.