Transfer Pricing Rules and Their Application in UAE
The UAE has taken important steps to bring its corporate tax law in line with global standards. Now, every business that deals with related parties or companies in other countries must understand how transfer pricing works. Knowing about transfer pricing helps companies follow the law, avoid fines, and keep their business safe.
What Is Transfer Pricing and Why Does It Matter?
Transfer pricing means setting prices for goods, services, or intellectual property when companies trade with their related parties or affiliates. In the UAE, the law says every company must use fair prices, also called the arm’s length price. The arm’s length price is the price two unrelated businesses would agree on in an open market. The aim is to stop companies from shifting profits unfairly or lowering their taxes in tricky ways.
Transfer pricing is not just about money—it’s about fairness, keeping trust, and building a good business reputation. It is also required under the UAE Corporate Tax Law.
What Is the Arm’s Length Price?
The arm’s length price is the price that two unrelated companies would use if they made a deal in a normal market. UAE companies must use this fair price for deals with related companies, whether they’re in the same country or in another country.
If a company sells products to its parent or sister company, it must use a price that’s close to what it would charge an outside customer. The authorities want to see this price is not made up just to save tax or make fake profits.
Main Transfer Pricing Methods in UAE
The UAE follows the OECD Guidelines for transfer pricing. Every business should know these five main methods to figure out the right price for their deals:
1. Comparable Uncontrolled Price (CUP) Method
This method checks the price of a deal between related parties against a similar deal between independent companies. If the prices match, it shows the deal is fair.
2. Cost-Plus Method
Here, the company adds a normal profit margin to the cost of making a product or offering a service. For example, if making a chair costs AED 100 and the usual profit margin is 20%, the selling price should be AED 120.
3. Resale Price Method
This method works by taking the price at which a product is sold to an unrelated party and removing a standard profit margin. The rest is the arm’s length price for the related-party deal.
4. Transactional Net Margin Method (TNMM)
Companies compare the net profit margin from a related-party deal with the margins from similar deals with independent parties. If the numbers are close, it means the transfer price is fair.
5. Profit Split Method
When two companies work closely together on a project, this method divides the profit between them based on how much each contributed.
Quick summary:
- Use CUP when you have the same kind of deal with outsiders.
- Cost-Plus works when you know the true costs.
- Resale Price is best for resellers.
- TNMM works when you can compare net profits.
- Profit Split helps when both sides add equal value.
Who Must Follow Transfer Pricing Rules in UAE?
Transfer pricing rules apply to any UAE business that deals with:
- Related Parties:
- Two or more people linked by family, adoption, or guardianship.
- A person and a company where the person owns at least 50%.
- Companies that own each other by 50% or more.
- Trusts or foundations and the people who run them.
- Connected Persons:
- Owners or directors of a taxable company.
- People linked by business control or official roles.
If a company makes deals with any of these related parties, it must use arm’s length prices and keep all documents ready for checks by the tax authority.
Why Is Documentation Important?
The UAE requires every company to keep detailed records for transfer pricing. You need to show how you picked your prices, which method you used, and why it’s fair. If the Federal Tax Authority (FTA) asks for proof, your company must give all documents, calculations, and contracts.
Documents you should keep:
- Transfer pricing policies and reports
- Contracts for every related-party transaction
- Calculations and benchmarks used to set prices
- Any emails or files showing how deals were made
Penalties for Not Following the Rules
If a business doesn’t use the right transfer pricing or fails to keep documents, the FTA can give fines or run audits. Bad transfer pricing can also lead to double taxation or loss of reputation. So, staying on top of this topic is a must.
How Mubarak Al Ketbi (MAK) Auditing Helps with Transfer Pricing
Mubarak Al Ketbi (MAK) Auditing helps companies stay safe and follow all UAE transfer pricing rules. We have a skilled team that knows the local law, OECD standards, and best practices. We review your deals, prepare transfer pricing reports, and help you keep documents in good order. We also explain which method suits your company best.
Our team works with you, so you always keep up with the latest rules, never miss a deadline, and get the full benefits of legal compliance. We make sure you don’t get caught off guard—let’s nip your transfer pricing worries in the bud!
How MAK Auditing Can Help You
How We Can Help at Mubarak Al Ketbi (MAK) Auditing
Mubarak Al Ketbi (MAK) Auditing can support your business in every step of transfer pricing. We help you pick the best pricing methods, keep your records neat, and train your team for compliance. We’re right there with you, so you’ll never be left in the lurch.
For more information, please:
- Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact/WhatsApp: +971 50 276 2132
