Middle East TP Updates – UAE and KSA

KSA

The Zakat, Tax and Customs Authority of Kingdom of Saudi Arabia (KSA) has issued its directive in extending transfer pricing regulations and introducing advancepricingagreement (APA).

A) Currently, 100% Zakat taxpayers are exempt from Transfer pricing regulations in KSA, except for filing of Country-by-country report (CbCR) where applicable. In July 2022, the Tax authority issued a public consultation on making transfer pricing provisions applicable to Zakat taxpayers. As per the recent directive (unofficial translation), taxpayers paying Zakat Tax will the subject to transfer pricing regulations effective from 01 January 2024. However, this will be applicable in a phased manner and subject to monetary threshold limits as follows:

Phase 1-From 01 Jan 2024

i) Mandatory where value of relatedpartytransactions (RPT) is more than 100 million (mn.) SaudiArabianRiyals (SAR);

ii) Optional where value of RPT is between 100 mn. SAR and 48 million SAR;

iii) Not applicable where value of RPT is less than 48 mn. SAR.

Further investment funds are exempted in Phase1

Phase 2-From 01 Jan 2027

i) Mandatory where value of RPT is more than 48 mn. Riyals;

ii) Not applicable where value of RPT is less than 48 mn. Riyals.

Therefore, taxpayers currently under 100% Zakat tax, subject to the limits, will now have to prepare localfile and masterfile with effect from 01 January 2024, apart from CbCR where applicable.

B) The recent directive made applicable the provisions of APA effective from 01 January 2024. The Transfer pricing regulations was introduced in 2019 in KSA and with the introduction of APA programme it can be expected to cap any likelihood of significant TP disputes.

UAE

1. The UAE issued Ministerial Decision No. 68 of 2023 that states when a government entity(ies) conduct business under the License issued, i.e., where government entity is not exempted from UAE Corporatetax, Federal government business and business activities can be treated as single taxable person for the purpose of UAE Corporate Tax. This is aimed to simplify tax compliances for government business activities. This means transfer pricing related compliances will not be applicable for transactions between governmentbusinesses when treated as single Tax Group
2. Article 51 of UAE corporate tax law provides that taxable persons have to register with Federal Tax Authority, unless exempt under certain cases. The UAE Ministry of Finance has recently issued Ministerial Decision No. 43 of 2023 providing exemption from Tax registration for certain persons viz., government entities, government-controlled entities, as well as extractivebusinesses and non-extractive natural resource businesses. However, these persons will have to meet the necessary conditions specified under the Corporate Tax law in connection with exemption for registration.