UAE corporate tax risk can begin with one ordinary business decision

A business decision can spark corporate tax risk, according to a report. A client is poised to sign a contract, and within an hour, a choice is made based on which company holds the licence, bank account, and is registered on the vendor system. Two years later, this seemingly innocuous decision holds significant weight. It determines where revenue is recorded, the risk is borne, profits reside, and which tax authority may claim jurisdiction.

The delivery team now resides in a different country, with no documentation explaining why the decision was made. Corporate tax is back on the agenda in the UAE, with a filing deadline of 30 September for businesses with a December year-end. The most crucial question is deceptively simple: what actually happened? Transfer pricing, the process of deciding what one group company should charge another, is commonly understood, but it is the substance that matters more than pricing.

Before asking if a charge is reasonable, we must determine if an independent business would have entered into the arrangement and whether the entity performing the work is genuinely the same one. Engaging advisers at filing time can interpret rules, test pricing, and identify exposure, but they cannot create the commercial reality that should have existed throughout the year.

UAE corporate tax audits scrutinize transfer pricing records, emphasizing the importance of aligning what happened, what was recorded, and what was reported.