Dubai Incorporation and Transfer Pricing: Strategies for International Expansion
CA Gagan Gupta
Founder & Principal, Kishnani & Associates
CA Gagan Gupta is a seasoned Chartered Accountant with extensive expertise in taxation, audit, financial consulting, and business advisory. A fellow member of the ICAI since 2021, he has been practicing since 2016, providing strategic financial solutions to businesses, startups, and individuals. Under his leadership, Kishnani & Associates delivers precise and ethical financial services, ensuring seamless regulatory compliance and sustainable growth for clients.
Expanding business operations beyond domestic borders requires a careful understanding of international tax frameworks, regulatory obligations, and strategic jurisdictional choices. Among global destinations, Dubai and the broader United Arab Emirates (UAE) continue to stand out as a preferred hub for international incorporation and expansion. The combination of world-class infrastructure, strong governance, and recent fiscal reforms has made Dubai not just a tax-friendly jurisdiction but a compliant and transparent global business centre.
However, with the introduction of corporate tax and transfer pricing (TP) regulations in 2023–24, the UAE’s tax landscape has transformed significantly. Businesses now need to align their inter-company transactions, documentation, and corporate structures with international standards to avoid penalties and ensure continued eligibility for free-zone incentives.
1. Why Choose Dubai for Global Expansion
Dubai’s rise as a global business hub is the result of its strategic location, liberal trade policies, and attractive regulatory environment. Key advantages include:
a. 100% Foreign Ownership: Companies established in most free zones or under the mainland regulations (subject to licensing conditions) can have full foreign ownership.
b. Repatriation of Capital and Profits: There are no restrictions on transferring profits or capital abroad.
c. Zero Withholding Taxes: No withholding taxes on dividends, interest, or royalties.
d. No Personal Income Tax: Individuals enjoy complete exemption from personal taxation.
e. Robust Infrastructure and Connectivity: Dubai connects global markets across Asia, Europe, and Africa, making it ideal for trade and logistics.
f. Stable Governance: The UAE’s clear legal and regulatory framework ensures investor confidence and long-term stability.
Historically, Dubai’s appeal stemmed largely from its “tax-free” status.. However, with global alignment toward OECD standards and Base Erosion and Profit Shifting (BEPS) compliance, the UAE introduced a corporate tax regime and transfer pricing framework to enhance transparency and fairness.
2. UAE Corporate Tax Regime – Key Highlights
The UAE Corporate Tax Law (Federal Decree–Law No. 47 of 2022) came into effect for financial years starting on or after 1 June 2023. It represents a major shift from a zero-tax to a structured, low-tax environment.
Applicable Tax Rates (as of FY 2024-25):
a. 0% corporate tax on taxable income up to AED 375,000 (approx. USD 102,000).
b. 9% corporate tax on taxable income exceeding AED 375,000.
c. Large multinational groups (with global consolidated revenue exceeding EUR 750 million) may be subject to a 15% rate under the OECD’s Global Minimum Tax (Pillar Two).
d. Qualifying Free Zone Persons can still enjoy 0% tax on qualifying income, provided they meet substance, compliance, and transfer pricing conditions.
e. Non-qualifying income of free zone entities is taxed at 9%.
This approach preserves Dubai’s attractiveness while aligning it with global best practices, balancing competitiveness with compliance.
3. Transfer Pricing (TP) Regulations – Arm’s-Length Alignment
For companies incorporating in Dubai or operating regionally, transfer pricing is now a mandatory compliance domain.
Transfer pricing refers to how entities within the same group price transactions—like goods, services, intangibles, or financing—with each other.
The UAE’s TP framework, introduced under Articles 34–37 of the Corporate Tax Law, mandates that all related-party transactions must follow the Arm’s-Length Principle (ALP)—pricing as if the parties were independent and dealing in open market conditions.
Key Transfer Pricing Compliance Requirements:
a. Transfer Pricing Disclosure Form
Must be filed with the corporate tax return, summarizing all related-party and connected-person transactions.
b. Master File and Local File Documentation
1. Required for businesses meeting certain thresholds:
a. Consolidated group revenue ≥ AED 3.15 billion, or
b. Local revenue ≥ AED 200 million.
2. The Master File outlines the global business and TP policy of the group.
3. The Local File details the UAE entity’s inter-company dealings, benchmarks, and analysis.
c. Functional and Risk Analysis
Businesses must analyze the functions performed, the assets employed, and the risks assumed to justify their pricing.
d. Maintenance of Records
Documentation must be prepared contemporaneously and retained for at least seven years.
e. Arm’s-Length Testing and Benchmarking
Entities must benchmark pricing using approved TP methods, such as Comparable Uncontrolled Price (CUP), Resale Price, or Transactional Net Margin Method (TNMM).
4. Compliance Updates & Enforcement Trends (2024–2025)
The Federal Tax Authority (FTA) has intensified monitoring of transfer pricing and corporate tax compliance. The following updates are noteworthy:
a. Ministerial Decision No. 97 of 2023 clarified TP documentation requirements and introduced the TP Disclosure Form.
b. FTA TP Guide (October 2023) provides detailed guidance on benchmarking, functional analysis, and intra-group service pricing.
c. Free Zone Substance Requirements:
To retain the 0% corporate tax on qualifying income, free zone entities must:
- Conduct genuine business activity within the zone.
- Maintain adequate local substance (office, employees, decision-making).
- Maintain TP documentation to substantiate arm’s-length pricing.
d. Penalty Provisions:
Non-compliance with TP or documentation rules can attract penalties ranging from AED 10,000 to AED 375,000, depending on the nature and severity.
e. Advance Pricing Agreements (APAs):
UAE now permits APAs, enabling businesses to agree upon pricing methodologies in advance, thereby minimizing audit risk.
5. Benefits of Dubai Incorporation in the New Tax Regime
Even after introducing corporate tax, Dubai remains one of the most business-friendly jurisdictions globally, thanks to:
a. Low Effective Tax Rate: The UAE’s 9% corporate tax rate is among the lowest worldwide.
b. Free Zone Incentives: Businesses may retain a 0% tax rate on qualifying income, subject to compliance.
c. Extensive Double Taxation Avoidance Agreements (DTAA):
Over 140 tax treaties minimize double taxation risk and ease cross-border remittances.
d. Ease of Incorporation: Quick registration, flexible ownership structures, and minimal capital requirements.
e. Stable and Predictable Regulations: The UAE issues frequent guidance, allowing companies to adapt proactively.
f. No Tax on Dividends or Capital Gains: Intra-group dividends or capital gains from qualifying shareholdings remain exempt.
g. Strategic Re-export and Logistics Hub: Ideal for companies engaged in regional trading, services, or supply chain operations.
6. Practical Steps for Compliance and Risk Management
Companies planning to expand or incorporate in Dubai should adopt a structured tax and transfer pricing framework from inception:
a. Evaluate Corporate Structure Early: Choose between a mainland or free zone setup based on the business’s nature and expected income mix.
b. Transfer Pricing Policies: Draft inter-company agreements, define pricing methods, and justify margins with benchmarks.
c. Prepare Documentation Proactively: Maintain Master Files, Local Files, and disclosure forms in accordance with OECD standards.
d. Ensure Economic Substance: Demonstrate real management and control in the UAE.
e. Seek Professional Advice: Regular reviews by tax and transfer pricing experts can help pre-empt compliance issues.
f. Monitor Regulatory Updates: FTA frequently issues new guidance, circulars, and filing formats.
Conclusion
Dubai continues to represent the intersection of tax efficiency, global connectivity, and modern compliance. The introduction of a 9% corporate tax and transfer pricing rules has moved the UAE from a purely tax-free jurisdiction to a globally respected, regulation-aligned business hub.
For multinational groups and new investors, these changes entail greater scrutiny but also confer enhanced legitimacy and stability. Companies that incorporate in Dubai with transparent structures, robust documentation, and arm’s-length pricing can enjoy the dual advantage of compliance and competitiveness.
In essence, Dubai’s evolution from a no-tax haven to a low-tax, rule-based jurisdiction signals a maturing economy—one that rewards compliance, economic substance, and international credibility. For expanding businesses, this makes Dubai not just a gateway to the Middle East but a sustainable base for long-term global growth.
For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com
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