How To Choose Transfer Pricing Methods in UAE CT Law
Understanding Transfer Pricing Methods in UAE
Every company in the UAE that works with related parties or connected persons needs to follow transfer pricing rules. The UAE Corporate Tax law explains how companies must set prices for deals with related parties. Mubarak Al Ketbi (MAK) Auditing helps every client understand and apply these rules in business. With global business growing fast, knowing transfer pricing is more important than ever.
Companies must know which transfer pricing method fits their deals best. If a company follows these rules, it can avoid problems with the tax office and keep good business standing.
Why Are Transfer Pricing Methods Important?
The main aim of transfer pricing methods is to check if the price between related parties is fair. This is called the “arm’s length principle.” If the price matches what two independent companies would use, the tax office accepts it. Mubarak Al Ketbi (MAK) Auditing always tells clients to use fair pricing for every transaction.
There are five main methods for transfer pricing in UAE:
- Comparable Uncontrolled Price (CUP) Method
- Resale Price Method
- Cost-Plus Method
- Transactional Net Margin Method
- Profit Split Method
Detailed Transfer Pricing Methods
Comparable Uncontrolled Price (CUP) Method
With this method, you compare the price of a product or service in a controlled deal with the price for the same thing in a deal between unrelated parties. If the prices match, you’ve met the arm’s length rule. If the prices differ, you must adjust the price.
Resale Price Method
This method checks the price of a product bought from a related party and sold to an independent party. You subtract the resale profit margin and other direct costs from the resale price. The answer gives you the arm’s length price for the first deal between related persons.
Cost-Plus Method
A company uses this method to find the price by adding a profit to the total costs (direct and indirect) spent making a product or service. The profit is based on market practice. The result is the arm’s length price for the controlled deal.
Transactional Net Margin Method
This method checks the net profit margin from a controlled deal. It compares the margin to what’s normal in deals with independent parties. The basis for profit can be costs, sales, or assets. If the net margin matches, you meet the arm’s length rule.
Profit Split Method
This method looks at the total profit from a deal between related parties. It splits the profit as independent companies would do in a similar deal. The profit division should be fair and follow what happens in the real market.
Other Methods
If the above five methods do not work for your deal, the UAE CT law allows companies to use another method. Mubarak Al Ketbi (MAK) Auditing can help pick the right way if your business needs it.
Steps To Select the Right Transfer Pricing Method
Companies must pick the most suitable method for their business. Here are steps to help make the right choice:
- Look at the pros and cons of each method for your deal.
- Check the type and size of the deal using a functional analysis.
- See if you have accurate and enough data for the method.
- Make sure you can compare your deal with deals between independent parties.
- Adjust for differences between deals to keep it fair.
If your company follows these steps, it’ll choose the right transfer pricing method.
When To Use More Than One Method
Sometimes, one method does not give a fair or reliable answer. If this happens, your company can use a mix of methods. The main goal is to get the right result that fits the arm’s length rule. Mubarak Al Ketbi (MAK) Auditing supports businesses if they need a combination of methods.
What Problems Can Happen If You Don’t Follow The Rules?
If you don’t use the correct method, you might:
- Face tax penalties from the UAE government.
- Get your tax returns rejected.
- Hurt your business reputation.
- Lose business deals with other companies.
It’s always safer to follow the right steps, keep records, and use expert help from Mubarak Al Ketbi (MAK) Auditing.
How Mubarak Al Ketbi (MAK) Auditing Can Help You
When you choose a transfer pricing method, you want everything to go smoothly. Mubarak Al Ketbi (MAK) Auditing always stands ready to help your business:
- We check your business deals and help you choose the best method.
- We keep your records clear and up to date for every transaction.
- We review every step to match UAE CT law and global best practice.
- We update you when rules or methods change.
- We work with you, so your business always stays tax compliant.
When it comes to transfer pricing, “a stitch in time saves nine.” Let Mubarak Al Ketbi (MAK) Auditing handle your needs, so you stay focused on growing your business!
For more information:
- Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact/WhatsApp: +971 50 276 2132
