Transfer pricing for free zone companies
Our free zone company invoices our Indian parent. Does transfer pricing matter for the 0% rate?
The situation
Yes. Complying with the arm's length rules and transfer pricing documentation is a condition of the Qualifying Free Zone Person status.
The law
- Arts 18 and 34, Federal Decree-Law 47 of 2022: Arm's length compliance is a QFZP condition
- Art 55, Federal Decree-Law 47 of 2022: Disclosure and documentation of related party transactions
What it means for you
Example: the zone company provides back-office services to its parent at cost plus 2 percent while comparables earn cost plus 8 percent. The FTA could adjust income, and failing arm's length could put the status at risk. Use a benchmark or at least a documented pricing basis. India-side transfer pricing is for the India team.
What to do
- List all related party transactions.
- Set a documented pricing method.
- Prepare a benchmark if values are significant.
- Complete the TP disclosure in the return.
We can do this for youQualifying Free Zone Person review and return: substance, qualifying income, de minimis test and audited accounts: AED 6,000