Transfer Pricing in Dubai, UAE

Transfer pricing is the pricing of goods, services, or intangible assets transferred between related parties, such as affiliates or subsidiaries of a multinational company. The UAE Corporate Tax Law enforces transfer pricing regulations and documentation requirements to ensure that the pricing of transactions between related entities complies with the arm’s length principle.

Transfer pricing is crucial because it ensures that business dealings between related parties are carried out at arm’s length, which means that the prices are the same as they would be if the parties were not linked. This stops MNCs from moving earnings to countries with low taxes and guarantees that the UAE gets its fair share of tax money.

Who is subject to transfer pricing rules in Dubai?

All taxpayers who engage in transactions with related parties are subject to the UAE transfer pricing rules, regardless of their size or industry. However, some exemptions and simplified rules are in place for small and medium-sized enterprises. Transfer pricing consultants in Dubai can help you understand more about them.

Different transfer pricing methods

The most common methods are:

  • Comparable uncontrolled price (CUP) method: This method involves comparing the price of the transaction in question to the price of similar transactions between unrelated parties.
  • Cost plus method: This method involves adding a markup to the cost of the goods or services being transferred.
  • Resale minus method: This method involves subtracting a markup from the resale price of the goods or services being transferred.
  • Profit split method: This method allocates the profits from a transaction between related parties based on a predetermined formula.

The best transfer pricing method to use will depend on the specific facts and circumstances of the transaction.

What are the transfer pricing documentation requirements in the UAE?

Taxpayers who are subject to the UAE transfer pricing rules are required to maintain certain documentation. This documentation must be sufficient to demonstrate that the taxpayer’s transfer pricing arrangements are at arm’s length. Seeking a trusted transfer pricing consultant can assist you in getting all the necessary documentation in order. The required documentation includes:

  • A master file: This file must contain general information about the taxpayer’s business, its related parties, and its transfer pricing arrangements.
  • A local file: This file must contain more detailed information about the taxpayer’s transfer pricing arrangements, including the transfer pricing methods used and the supporting documentation.

Penalties may apply to taxpayers who fail to keep track of the necessary records.

How can we assist?

Our team of knowledgeable transfer price specialists at TRCPamco can assist you in adhering to the UAE transfer pricing regulations. We can assist you with:

  • Developing and implementing a transfer pricing policy
  • Choosing the appropriate transfer pricing method
  • Preparing the required transfer pricing documentation
  • Defending your transfer pricing arrangements in the event of a tax audit

We are prepared to assist you at every stage since we recognize that transfer pricing can be a challenging subject. For more information on our UAE transfer pricing services, contact our experts today!

Frequently Asked Questions

What is transfer pricing?

Pricing of goods, services, or intangible assets that are transferred between related parties, such as affiliates or subsidiaries of a multinational corporation (MNC), is known as transfer pricing.

What do the UAE's transfer pricing regulations serve?

The purpose of transfer pricing rules in the UAE is to ensure that transactions between related parties are conducted at arm’s length. This stops MNCs from moving earnings to countries with low taxes and guarantees that the UAE gets its fair share of tax money.

Who is subject to transfer pricing rules in the UAE?

Regardless of their size or industry, all taxpayers who conduct business with related parties must adhere to the UAE transfer pricing regulations. For small and medium-sized businesses, there are a few exceptions and more straightforward regulations, nevertheless.

What are the transfer pricing methods?

Among the number of methods used to price transactions between related parties, the most common methods are:

  • Comparable uncontrolled price (CUP) method
  • Cost plus method
  • Resale minus method
  • Profit split method

What are the transfer pricing documentation requirements in the UAE?

Taxpayers who are subject to the UAE transfer pricing rules are required to maintain certain documentation. This documentation must be sufficient to demonstrate that the taxpayer’s transfer pricing arrangements are at arm’s length. The required documentation includes a master file and a local file.

How do I determine the arm's length price for a transaction?

The arm’s length price for a transaction is the price that would be agreed upon by unaffiliated parties in a similar transaction, so the nature of the transaction, the characteristics of the goods or services being transferred, and the terms of the transaction are some of the factors that will determine the price.

What are the common transfer pricing errors?

Some common transfer pricing errors include:

  • Not using the appropriate transfer pricing method
  • Using incorrect data or assumptions
  • Failing to maintain adequate documentation

What are the repercussions of breaking transfer pricing regulations?

If a taxpayer doesn’t follow the UAE transfer pricing regulations, they risk fines like additional tax assessments and interest. Taxpayers may occasionally face criminal charges as well.

How can I avoid transfer pricing disputes?

Making sure that your transfer pricing agreements are fair and reasonable and that you have sufficient evidence to back up your claims will help you avoid transfer pricing conflicts the most. Seek transfer pricing consulting with a qualified tax advisor like us to be more compliant.

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