As part of its commitment to international tax transparency and Base Erosion and Profit Shifting (BEPS) measures, the United Arab Emirates (UAE) has implemented robust Transfer Pricing (TP) disclosure requirements and Economic Substance Regulations (ESR). These initiatives are designed to align the UAE’s tax practices with OECD standards and ensure that businesses operating in the country report income where actual economic activity occurs.
This blog provides a detailed overview of the Transfer Pricing Disclosure Form and the Economic Substance Requirements, their interplay, compliance obligations, and how businesses can ensure they meet these requirements with the right professional support.
1. What is a Transfer Pricing (TP) Disclosure Form?
The TP Disclosure Form is a document that must be submitted by UAE entities engaged in transactions with related parties or connected persons. The form requires disclosure of the nature and value of such transactions and is intended to ensure transparency in intercompany dealings under the UAE Corporate Tax regime.
It must be filed alongside the annual Corporate Tax return and includes information such as:
- Details of related parties and connected persons
- Nature of transactions (e.g., goods, services, financing)
- Transfer pricing methodologies used
- Total transaction values and relevant jurisdictions
This form is mandatory for entities meeting specific thresholds under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022).
2. Who Needs to File the TP Disclosure Form?
Businesses must submit the TP Disclosure Form if they are part of a multinational enterprise (MNE) group or conduct transactions with related parties or connected persons exceeding thresholds defined by the Ministry of Finance. The FTA may also require submission if:
- The taxable person is a member of an MNE with a consolidated revenue exceeding AED 3.15 billion
- The taxable person claims reliefs or exemptions under the Corporate Tax Law
- There are significant related party transactions
Non-compliance may result in penalties or increased audit scrutiny.
3. Understanding Economic Substance Requirements (ESR)
The ESR regulations were introduced via Cabinet Resolution No. 57 of 2020 and Ministerial Decision No. 100 of 2020. These require certain UAE entities conducting “Relevant Activities” to have substantial economic presence in the UAE.
Relevant Activities include:
- Banking
- Insurance
- Investment fund management
- Shipping
- Lease-finance
- Intellectual property business
- Headquarters, holding companies, and service centers
Entities undertaking these activities must demonstrate:
- Core income-generating activities (CIGAs) in the UAE
- Managed and directed in the UAE
- Adequate number of full-time employees, expenditure, and physical assets in the UAE
4. Reporting Obligations Under ESR
Entities must submit:
- Notification: Annually, declaring whether they undertake any Relevant Activities
- Economic Substance Report: If engaged in any Relevant Activities and earning income from them
Reports must be submitted through the Ministry of Finance ESR Portal. Failure to comply can lead to administrative penalties ranging from AED 20,000 to AED 400,000 and possible exchange of information with foreign tax authorities.
5. Interplay Between TP Disclosure and ESR
Both the TP Disclosure Form and ESR regulations aim to prevent tax base erosion and profit shifting. Their requirements often overlap for businesses with cross-border intercompany dealings. For example:
- Transactions with related parties must be reported in both TP and ESR filings
- Transfer pricing policies should support economic substance claims
- Inconsistent filings can raise red flags during FTA audits
Coherence between the two reports is essential for demonstrating tax compliance.
6. How PEAK Business Consultancy Services Helps
PEAK Business Consultancy Services is a trusted VAT and Corporate Tax consultancy firm in the UAE. We offer end-to-end support in:
- Preparing and submitting TP Disclosure Forms
- Conducting related party analysis and benchmarking
- Documenting Transfer Pricing policies
- Assessing ESR applicability and preparing reports
- Aligning corporate structures with UAE tax requirements
With our in-depth expertise and proactive advisory, we ensure your business is compliant, audit-ready, and strategically positioned.
For professional assistance, visit https://www.peakbcs.com/.
7. Importance of Documentation and Internal Controls
Maintaining accurate documentation is critical to substantiating TP and ESR filings. Businesses should:
- Maintain intercompany agreements and invoices
- Use appropriate TP methods supported by benchmarking
- Keep board meeting minutes and management decisions
- Track local operational substance (staff, premises, costs)
Documentation also aids in preparing Master and Local Files under OECD-compliant TP regulations, which may be requested by the FTA.
8. Fines and Penalties for Non-Compliance
Businesses that fail to meet TP or ESR obligations face penalties including:
- TP Form non-submission: Administrative penalties and audits
- ESR Notification non-filing: AED 20,000
- ESR Report non-filing: AED 50,000 for first offense; AED 400,000 for repeated offenses
- Potential license revocation and reputational damage
To avoid these outcomes, businesses are encouraged to seek expert guidance and act proactively.
9. Timeline and Annual Filing Requirements
Both ESR and TP filings follow strict timelines:
- ESR Notification: Within 6 months of the end of the financial year
- ESR Report: Within 12 months of the financial year-end
- TP Disclosure Form: With the Corporate Tax return (within 9 months of the end of the financial year)
Missing these deadlines not only leads to penalties but may also result in data sharing with foreign tax jurisdictions under automatic exchange agreements.
10. Conclusion
With the rise in global tax transparency and digital tax enforcement, complying with Transfer Pricing and Economic Substance Regulations is no longer optional for UAE businesses. Proper reporting, documentation, and strategic planning are essential to demonstrate good faith and reduce compliance risk.
PEAK Business Consultancy Services stands ready to help your business navigate these complex obligations with precision and professionalism. From TP disclosures to ESR compliance, our team ensures you’re covered end-to-end.
To schedule a consultation or learn more about our services, visit https://www.peakbcs.com/.
