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International Taxation and Transfer Pricing : Middle East Guide

Published on : 27 Aug 2021

Transfer Pricing Regulations in the Middle East

The Transfer Pricing is a common mechanism which the countries use to transfer the tax base. The transfer is often from countries with high taxation to countries with low taxation. Transfer Pricing deprives states of their fair share of taxes from global corporations. In the case of Transfer Pricing, countries are competing for the presence of multinationals by adopting ways to make their jurisdiction more attractive. One such adopted way is by decreasing its corporation tax. No doubt that the Transfer Pricing legislation has been in Europe and North America for around 50 years, but the Middle Eastern countries are newcomers in this field. 

 In the European Union, many public authorities introduced Transfer Pricing Regulations; however, the effectiveness of these regulations has been in question. Some consider the regulations as a contributory factor to the increasing complexity of tax laws and an additional cost for companies. The common consolidated corporate tax base was primarily introduced to solve the Transfer Pricing problem in the European Union.

Middle Eastern countries have witnessed significant developments in the taxation sector. The Middle East was popular for relying heavily on the Oil and Gas sector to contribute to its national revenues. However, seeing a decrease in the energy prices which lowered the total revenue by about 60 percent between 2012 and 2016, many countries introduced Value Added Tax in 2018. The Middle East also signed up to international Transfer Pricing recommendations from the Organization for Economic Cooperation and Development, as an attempt to counter the erosion of national revenue and further minimize capital flight.

Kingdom of Saudi Arabia

The Kingdom of Saudi Arabia (KSA) introduced its Transfer Pricing legislation in December 2018, with its final roll-out in February 2019. The KSA's General Authority for Zakat and Income Tax introduced reforms, where companies operating in the KSA must comply with the 3-tiered documentation required by Article 13 (covering transfer pricing documentation and country by country reporting (CbCR)). Firms must supply the following:

  1. Master file; 
  2. Local file- containing additional information required by the OECD, such as industry analysis; and  
  3. CbC report. 

The companies are also required to submit a Transfer Pricing disclosure, providing details on enclosed transactions and Transfer Pricing policy. These requirements are as per the recommendations of OECD. 

The KSA framework introduces four minimum standards for business to follow.

  1. Article 5 covers harmful tax practices;
  2. Article 6 covers treaty abuses;
  3. Article 13 covers transfer pricing documentation and country by country reporting (CbCR); and
  4. Article 14 - covers dispute resolution.

In 2019, Bahrain, Egypt, Qatar and the United Arab Emirates also introduced new Transfer Pricing regulations. Bahrain and Oman are expected to introduce new transfer pricing regulations as well.

The increased focus on Transfer Pricing by the Middle Eastern countries is a result of compliance with commitments on tax

cooperation. Many jurisdictions in the Middle East continue to commit to the OECD’s Inclusive Framework for the implementation of minimum standards. 

Recent changes to the Transfer Pricing requirements: 

United Arab Emirates

The UAE Cabinet issued the Cabinet of Ministers Resolution Number 31 of 2019 concerning economic substance regulations in the UAE on 30 April 2019. The Regulations require the UAE entities ("Relevant Entities") that carry out any of the activities listed as "Relevant Activities" in the Regulations to have demonstrable economic substance in the UAE from 30 April 2019. In addition, CbC reporting is required for MNEs with consolidated group revenue of a minimum of USD 860 million. MNEs must notify the UAE government of the CbC filer’s tax residency. The entities subject to the economic substance regulations must file an annual notification declaring the business and activities being performed and if the economic substance test is being met.

The Regulations were introduced to honor the UAE's commitment as a member of the Organization for Economic Cooperation and Development Inclusive Framework on Base Erosion and Profit Shifting and in response to European Union's review of the UAE tax framework. The Regulations ensure that the Relevant Entities undertaking Relevant Activities are not being used to artificially inflate profits that are not in commensuration with the economic activity undertaken in the UAE. The objective of the Regulations is to determine the requirements and set out the standard to confirm that the Licensee carries out the activity in the State that achieves economic substance interest. 

The Regulations came into force on 30 April 2019, guidance on the Regulations was issued on 11 September 2019, the Regulatory Authorities were identified in a Ministerial Resolution issued on 4 September 2019 and amendments were made to the Regulations in Cabinet Decree Number 7 of 2020 issued on 19 January 2020 (the "2020 Regulations"). As per the 2020 Regulations the provisions of the Regulations do not apply to any commercial company, as defined in Article 8 of Federal Law Number 2 of 2015 concerning Commercial Companies, as amended, in which the Federal Government, the Government of any Emirate of the State, any Government Authority or entity affiliated to either of them owns directly or indirectly at least fifty-one percent (51%) of the share capital. The Regulations apply to a licensee carrying out Relevant Activities. Under the Regulations, "Relevant Activities" are:  

  1. Banking  
  1. Insurance  
  1. Fund management  
  1. Lease-finance  
  1. Headquarters  
  1. Shipping  
  1. Holding company  
  1. Intellectual property (IP)  
  1. Distribution and Service Centre 

The Relevant Entity must comply with the economic substance requirements by: 

  1. Conducting the core income-generating activities in the UAE;  
  1. Being “directed and managed” in the UAE; and  
  1. Considering the level of activities performed in the UAE:  
  1. Having an adequate number of qualified full-time employees in the UAE  

  1. Incurring an adequate amount of operating expenditure in the UAE  

  1. Having adequate physical assets in the UAE.  

  A Relevant Entity which only undertakes a Holding Company Business will be subject to less stringent economic substance requirements. However, if a Relevant Entity carries out high-risk IP related activities, additional requirements shall apply. It is mandatory that the economic substance requirements be met for each of the Relevant Activities in case a Relevant Entity is carrying out more than one Relevant Activity

The penalty for failure to demonstrate sufficient economic substance in the UAE or to notify or to provide accurate or complete information or for the relevant Financial Year ranges from AED10,000 - AED50,000. 


Bahrain's rules, effective from January 2019, require profits generated by the companies of Bahrain to comply with the actual economic activity in Bahrain. The new rules protect situations where the Bahrain entities accrue profits concerning the attribution of specific functions; albeit, in reality, it does not have the required level of substance for managing and controlling such functions. The entities that fall under the definition of "Relevant Entities" are subject to the rules and are required to file an annual Economic Substance Report within a period of three months from the end of the financial year. 


Egypt, similar to the KSA, introduced master file and local file documentation requirements, effective from January 2019. The rules apply to tax years beginning on or after 1 January 2018. However, there is no minimum threshold for the preparation of a master file and local file. A CbC report is also required for MNEs with consolidated group revenue of a minimum of USD 190 million. 


There are currently no specific Transfer Pricing documentation requirements; however, Oman has also joined the OECD's Inclusive Framework for the implementation of minimum standards. As a result, Oman may introduce its CbC reporting requirements accordingly.


On 25 February 2020, Turkey adopted the three-tiered transfer pricing documentation, including the preparation of a master file, local file and CbC report. A master file is required for MNEs with assets and revenues of a minimum of USD 75 million. A local file is a requirement for all entities with related-party cross-border transactions. Companies with revenues and assets of a minimum of USD 15 million USD must submit a detailed form on related parties and intercompany transactions. CbC reporting is required for MNEs with consolidated group revenue of a minimum of USD 820 million.


At the end of 2019, Qatar also published its Executive Regulations to the Income Tax Law introducing Transfer Pricing documentation requirements for tax years ending on or after 31 December 2019. Along with the master file and local file requirements, which supplement the CbC reporting requirements that have been in effect since 2018, the new rules also require a Transfer Pricing questionnaire to be submitted with the annual tax return. The threshold for preparation of a CbC report is USD 825 million. 


With the adoption of Transfer Pricing regulations, the GCC authorities signing the Base Erosion and Profit Shifting Inclusive Framework and further having committed to applying four minimum standards, Transfer Pricing in the Middle East shall permit and regulate the Pricing Transactions internally within businesses as well as between companies which operate under common control or ownership, including cross border transactions. The MNEs having their operations in the Middle East must carefully take the changes to the Transfer Pricing documentation requirements and their deadlines into consideration. The Middle Eastern countries require the preparation of Transfer Pricing documentation in compliance with the Organization for Economic Co-operation and Development’s base erosion and profit shifting initiative. The Middle Eastern countries in the region did not previously have Transfer Pricing documentation requirements. The documentation obligations have increased by adding the preparation of documentation that is consistent with the OECD’s three-tiered approach.

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