A UAE Company engages in transactions with a related party or connected persons, and the related party is claiming small business relief.

Are the transactions with the resident related party required to be included in the local file when the related party is claiming small business relief?

• Yes, the transactions with the resident related party claiming small business relief must be included in the local file under certain conditions.

• Conditions for Inclusion in Local File:

  • If the related party claiming small business relief meets the conditions required for such a claim, then these transactions are obligated to be included in the local file.

• Non-Compliance with Small Business Relief Conditions:

  • If the related party does not meet the conditions necessary to claim small business relief and has paid taxes, then the transactions with this entity are not required to be included in the local file.

Key Point: Inclusion of transactions in the local file depends on the eligibility of the related party for small business relief and whether they fulfill the stipulated conditions for the claim.

Practical Case Study 

XYZ LLC is a UAE-based electronics manufacturing company with a subsidiary, ABC LLC, which supplies specialized components to XYZ LLC. Both companies engage in transactions with each other, and ABC LLC is eligible for small business relief under UAE tax regulations.

Company Status:

1. XYZ LLC: A well-established electronics manufacturer in the UAE.

2. ABC LLC: A subsidiary of XYZ LLC, supplying components to the parent company.

Key Questions:

1. Are transactions with ABC LLC required to be included in XYZ LLC local file for transfer pricing compliance?

Resolution:

1. Small Business Relief Eligibility: ABC LLC meets all the specified conditions for small business relief.

2. Inclusion in Local File: As per UAE Corporate Tax Law, transactions with related parties, even those claiming small business relief, are required to be included in the local file for transfer pricing compliance if the related party qualifies for the relief and meets the associated conditions.

Conclusion:

In the case of XYZ LLC and ABC LLC, where ABC LLC is claiming small business relief, transactions between the two companies must be included in XYZ LLC’s local file for transfer pricing compliance.