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It is the first tax digest of 2025. This edition highlights the most significant updates in UAE and international tax legislation that closed out 2024 and sets the stage for the year ahead.
We are also introducing a new feature in our digest - thematic highlights of the month. Each month, we will focus on a specific tax-related topic, providing insights, expert commentary, and practical solutions.
This month’s theme is Transfer Pricing (TP).
We will share our expertise, relevant articles, and expert opinions on navigating TP compliance and its implications for businesses operating in the UAE and GCC.
Here’s a preview of the tax updates covered in this issue:
VAT updates: New public clarifications on cryptocurrency mining and the expanded scope of the Reverse Charge Mechanism (RCM).
Tax procedures: Simplified guidelines for correcting errors and enhancements to the whistleblower program for tax violations.
International developments: Progress on the double tax treaty negotiations with Russia and key updates on Pillar 2 implementation across the GCC.
Happy reading, and may 2025 bring growth, success, and new opportunities for you and your business!
The UAE FTA has clarified VAT treatment for cryptocurrency mining:
Mining for own use: not subject to VAT.
Mining for third parties: taxable at 5% if the client is in the UAE; 0% VAT may apply for non-resident clients under specific conditions.
Input VAT recovery: depends on whether mining is for personal use or provided as a service to third parties.
The UAE Ministry of Finance has issued Cabinet Decision No. (127) of 2024, which replaces Cabinet Decision No. (25) of 2018, expanding the scope of the Reverse Charge Mechanism (RCM) under VAT to include a broader range of transactions involving precious metals and stones.
Key Updates:
Expanded scope: the RCM now applies to an extended list of precious metals (e.g., gold, silver, palladium, platinum) and stones (e.g., diamonds, pearls, rubies, sapphires, emeralds), as well as jewelry predominantly composed of these materials.
Supplier obligations: VAT-registered suppliers are no longer required to charge and pay VAT on eligible transactions when supplying VAT-registered businesses.
Buyer obligations: VAT-registered buyers must self-account for VAT in their tax return if the goods are used for resale, production, or manufacturing of other goods.
On New Year's Eve, the UAE FTA issued Decision No. 8 of 2024, effective from January 1, 2025. This decision introduces a new mechanism allowing taxpayers to correct errors or omissions in VAT returns without affecting the due tax.
Key Highlights:
Taxpayers must use the Voluntary Disclosure (VD) process to correct errors or omissions, provided the corrections do not result in any change to the due tax.
Eligible Cases (Article 2):
Incorrect emirate reporting: reporting standard-rated supplies under the wrong emirate.
Misreporting zero-rated supplies.
Misreporting exempt supplies.
This decision provides relief for taxpayers, simplifying compliance for errors that do not impact tax liabilities.
FTA has issued an updated version of the Raqeeb User Guide (UAEGWB1), replacing the April 2022 version. This guide supports the Whistleblower Programme for Tax Violations and Evasion, which aims to promote compliance and enable secure, confidential reporting of tax irregularities related to excise tax, VAT, and corporate tax (CIT).
Key Updates in the New Raqeeb User Guide:
The guide outlines the application process, required information, and the steps for review and reward distribution.
For more details, access the updated guide here.
Representatives of Russia and the UAE have initialed a Double Tax Treaty (DTT), aiming to finalize all necessary procedures this year and enforce the agreement starting next year.
Key Points:
A more detailed analysis of the treaty and its implications is available here (in Russian).
The UAE, Bahrain, Qatar, Kuwait, and Oman have introduced a 15% Domestic Top-Up Tax under the OECD’s Pillar 2 framework, effective January 1, 2025. This tax targets multinational enterprises (MNEs) with annual consolidated revenues of at least €750 million in at least two of the last four fiscal years.
Key Updates:
Saudi Arabia has not yet announced plans to implement a Domestic Top-Up Tax under Pillar 2.
Transfer Pricing (TP) plays a critical role in the UAE's Corporate Tax framework.
UAE-based members of the Multinational groups with global revenues exceeding AED 3,150,000,000 and companies with local revenues above AED 200,000,000 must prepare and submit TP documentation.
For Free Zone Persons, compliance with TP Articles is a mandatory requirement to qualify as a Qualifying Free Zone Person (QFZP) and enjoy the 0% corporate tax rate.
The TP disclosure form must be filed as a part of the corporate tax return within 9 months of the tax period, detailing Related Party and Connected Person transactions above set thresholds.
Disclosure Thresholds:
A Related Party Transactions Schedule is required if the total transaction value exceeds AED 40 million. Disclosures must include details for transaction categories such as goods, services, IP, interest, and more if the value per category exceeds AED 4 million.
A Connected Persons Schedule is mandatory if the total transaction value with Connected Persons exceeds AED 500,000.
Step 1. Identify Transactions for TP Documentation:
Review transactions requiring TP documentation. Consult with tax advisor to verify which transactions fall under compliance and whether there is a valid basis to exclude any.
Companies often skip this step, potentially over-preparing documentation. Our experience shows that careful analysis can sometimes exclude certain transactions from compliance, saving resources.
Step 2. Make a TP Assessment:
Conduct an analysis of the pricing for controlled transactions to determine whether they comply with the arm's length principle. If any discrepancies are identified, outline measures to mitigate risks prior to the disclosure deadline. Be prepared to develop additional defense files on pricing and collaborate with a tax consultant to ensure compliance and support.
Step 3. Prepare to the 2025 Filing:
Identify transactions for inclusion in the Corporate Tax Return and ensure accuracy in its preparation. Validate details with a tax consultant to avoid errors.
Step 4. Prepare TP Documentation or reasonable records on pricing:
Currently, the Corporate Tax Return does not provide for the automatic attachment of Local and Master Files. However, these files must be prepared, maintained, and retained for 7 years after the end of the tax period. They may be requested by the FTA and, if so, must be submitted within 30 days.
Step 5. Ensure Ongoing Compliance for Free Zone Persons:
Monitor all controlled transactions continuously. Free Zone Persons seeking to maintain the 0% tax rate must ensure all transactions with Related Parties are priced at arm’s length.
Our TP team is ready to assist at every stage, from determining transaction compliance to documentation and ongoing monitoring. Contact us for tailored solutions to meet your TP obligations: mena@pgplaw.ru