The Impact of Transfer Pricing Regulation on Family-owned businesses in UAE

The UAE government is shortly anticipated to unveil its framework for corporate tax policy, which includes transfer pricing regulation too. This regulation’s implementation is required to provide an equitable and open business climate and eliminate misuse by means of tax-saving techniques.

Businesses that assist one another financially will be subject to increased inspection under transfer pricing regulations, which is an essential component of corporate tax law and a practice more frequently seen in family-run businesses.

The OECD’s larger Pillar II framework and its most recent global minimum corporate tax criterion, which exposes major corporations to a minimum tax rate of 15 percent, are in accordance with the UAE’s implementation of a corporate tax duty of 9 percent. To avoid multinational corporations from utilizing tax shelters, OECD countries, including the UAE, are required to adopt transfer pricing regulations.

Family businesses were cited as a group that may be required to change a few of its activities to meet with the transfer pricing regulations because of their excessive prominence in the region and also because they represent a significant portion of private sector companies.

Regional family businesses are related to one another and seek to assist one another, leveraging their connections to the community to foster an advantageous business climate. Delivering ideal environment to a related business might be viewed as base erosion or profit shifting under the proposed corporate tax framework, even though family businesses were not adopting these tactics to evade law.

It is anticipated that the corporate tax’s adoption will be utilized to enhance the business climate because it will fundamentally alter how businesses operate from a legal and accounting perspective. Family businesses may need to reconsider their conventional modes of operation as enterprises adapt their legal and accounting frameworks in advance of the UAE’s new corporate tax system, which takes effect in June of next year.

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