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Transfer Pricing Services in UAE

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    Transfer Pricing Services in UAE

    As the UAE is now more connected to the global marketplaces and the enactment of corporate tax legislations, transfer pricing is an essential part of tax compliance for companies that do business in foreign countries. It involves the practice of setting a price to goods, services, and other intangible assets that are transferred between connected entities, for example, the parent companies, subsidiaries, or affiliates. In order to adhere to standard clauses and thereby become tax-free, transactions should international. This will ensure that the profits are only taxed, where they accrue, or in other words, where the economic value is generated.

    At Vigor Accounting & Taxation, our transfer pricing service is a comprehensive one, which aims to orchestrate businesses that are following the international transfer pricing rules and even local guidelines, in a way that separate low-value transactions of related parties are still arm's-length and conforming with tax laws.

    What is Transfer Pricing?

    Transfer pricing is the process of setting prices for transactions involving the transfer of goods, services, or intangible assets between related entities or associated enterprises within a multinational group. Such kinds of transactions may relate to the delivery of products, offering of services, intellectual property licensing, and the like. The purpose for example, in the case of transfer pricing, the tax legislation is to avert multi-national companies from engaging in illicit fiscal strategies such as moving their profits from high-tax to low-tax legislative spaces by tinkering with the prices in transactions that occur between related parties. As a result, it ensures that the exact expected tax has been paid in every country the company has its business units.

    The arm's length principle serves as the bedrock of transfer pricing that needs the agreements of the terms and conditions of the transactions between the related parties to be like the ones between the independent, unrelated ones in the same kind of situations.

    Why Transfer Pricing Compliance is Important in the UAE

    Complying with transfer pricing regulations is critical for businesses operating in the UAE for several reasons

    • Avoiding Penalties

      Violation of transfer pricing rules can lead to huge penalties and even lead to the imposition of fines and underpaid taxes plus interest. The companies can minimize the incidence of expensive disagreements with the tax authorities by participating in all related-party transactions on an arm’s length basis and adequately supported where necessary.

    • Minimizing Tax Risks

      Compliance with transfer pricing rules is a key step that helps in avoiding double taxation, where the same profits are taxed in several jurisdictions. The companies that substitute the services should guarantee fair rhetoric pricing from each of the nation’s consequently lessening the chances of disputes among the tax departments in the different jurisdictions.

    • Maintaining Reputational Integrity

      Compliance with transfer pricing regulations is a way of demonstrating transparency and ethical business practices which are the very aims that a partner enterprise in the foreign country tries to achieve. However, the repair retailers that comply with international transfer pricing standards are usually viewed more favourably by regulators, investors, and other stakeholders.

    • Optimizing Tax Efficiency

      Although the main concern of transfer pricing is to ensure compliance, it can at the same time be a saving grace in terms of tax planning. By meticulously setting up associated party deals and making use of the transfer pricing techniques, businesses can maximize their global tax burden while at the same time respecting the legal obligations.

    Transfer Pricing Regulations in the UAE

    Corporate tax regulations were recently put in place in the UAE, which cover transfer pricing, and are meant to be in line with international standards, in particular, the OECD's (Organization for Economic Co-operation and Development) Base Erosion and Profit Shifting (BEPS) initiatives. The primary position in the OECD transfer pricing guidance, such as the arm's length principle, is incorporated in the UAE's transfer pricing regulations.

    Together with the OECD standards, the UAE requires the Master File and Local File documentation that needed in BEPS Action 13. These regulations guarantee that enterprises can openly reveal their transfer pricing plans to tax authorities and thus avoid being unfairly taxed.

    Key components of transfer pricing regulations in the UAE include

    01

    Arm’s Length Principle
    Businesses should maintain that all transactions between related parties are traded at arm's length. This simply means that the terms of a deal between two related parties should be in line with the market price of the product or the service. In other words, the two related parties should transact as if they were not really related.

    02

    Documentation Requirements
    Corporates must keep the documents with relevant supporting information transfer prices. The documents include how the maximum limit of cross-border has been determined in the Master File and where the money should be used for a particular purpose in the Local File.

    03

    Country-by-Country Reporting (CbCR)
    A group of worldwide entities with consolidated revenues above the set point is required to submit Country-by-Country Reports in order to reveal info of global allocation of income, taxes paid and the location of economic activities across the jurisdictions in which the group operates.

    04

    Transfer Pricing Audits
    The Federal Tax Authority (FTA) in the UAE is endowed with the authority to carry out transfer pricing audits to ratify the compliance with the local regulations. Companies have to be capable of giving a praiseworthy answer such as a justification for their agreements of the transfer price by providing supporting documents demanded by the tax authority.

    Common Transfer Pricing Methods

    To comply with the arm’s length principle, businesses must apply one of several transfer pricing methods to determine the appropriate pricing for related-party transactions. The OECD outlines five common methods, which are widely accepted in the UAE

    01
    Comparable Uncontrolled Price (CUP) Method
    When controlled parties trade, the CUP method checks the price they set with the price established by independent parties in similar conditions. This approach is typically used for selling items or providing financial services.
    02
    Cost Plus Method
    The cost plus method involves adding an appropriate markup to the cost of goods or services transferred between related parties. This method is commonly used for intercompany services or manufacturing arrangements.
    03
    Profit Split Method
    The profit split method divides profits from cross-company transactions based on how much each side contributed to the deal. This method is used for vague things like ideas and or for connected businesses that work closely like factories from the world.
    04
    Resale Price Method
    The resale price method calculates transfer price by deducting gross margin from resale price of goods or services. It is generally used when reseller procures goods from a related party and sells them to third parties.
    05
    Transactional Net Margin Method (TNMM)
    The TNMM checks the profit margins of a related party against those of independent parties in similar deals. This method is good for difficult transactions where comparisons are hard.
    06
    VAT Audits and Compliance
    The FTA regularly conducts VAT audits to ensure that businesses comply with VAT regulations. A VAT audit involves a thorough review of a business’s financial records, transactions, and VAT returns. Proper VAT accounting ensures that businesses are prepared for audits and can provide all required documentation to the FTA.

    Common Challenges in VAT Accounting in UAE

    Despite the relatively straightforward VAT framework in the UAE, businesses often face challenges in managing their VAT obligations, including:

    01
    Complex Transactions
    Companies which are involved in the distribution of goods and services across borders, or which are present/changing in the different sectors might face the issues in the right recognition of the supplies, VAT treatment, as well as compliance with the domestic and international VAT regulations.
    02
    Document Management
    For large enterprises dealing with big transaction volumes, one of the most challenging tasks is to manage all the VAT-related documents like invoices, receipts, and contracts. Organizations cannot underestimate the importance of maintaining proper records to the extent of committing errors in VAT returns and hence being the subjects of FTA audits.
    03
    VAT Adjustments and Corrections
    Adjustments might be necessary for mistakes in preceding VAT returns or for altering the VAT treatment of some transactions. Accurate management of these adjustments demands knowing VAT regulations thoroughly.

    How Vigor Accounting & Taxation Can Help

    At Vigor Accounting & Taxation, we offer a comprehensive suite of transfer pricing services to help businesses in the UAE comply with local and international regulations. Our experienced team of transfer pricing specialists ensures that your transfer pricing policies are compliant, transparent, and aligned with the arm’s length principle.

    ransfer Pricing Documentation icon

    Transfer Pricing Documentation

    We assist businesses in preparing detailed transfer pricing documentation, including the Master File and Local File, as required by UAE regulations. Our documentation is tailored to meet the specific needs of your business and provides robust support for your transfer pricing arrangements.
    Accurate Documentation and Filing icon

    Transfer Pricing Policy Development

    Our team helps businesses develop and implement transfer pricing policies that comply with both UAE and international regulations. We ensure that all your arrangements are in line with the arm’s length principle and optimize your tax position while minimizing risks.
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    Transfer Pricing Audit Support

    In the event of a transfer pricing audit by the FTA, we provide full support to ensure that your business is prepared to respond to inquiries and provide the necessary documentation. Our team works closely with you to ensure that your transfer pricing practices withstand regulatory scrutiny.
    CBCR icon

    Country-by-Country Reporting (CbCR)

    For multinational groups subject to Country-by-Country Reporting, we assist in preparing and submitting CbCR reports that comply with UAE regulations. Our team ensures that your CbCR filings are accurate, complete, and submitted on time.
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    Transfer Pricing Risk Assessment

    We conduct comprehensive transfer pricing risk assessments to identify potential risks and opportunities for improvement in the policies. Our team provides actionable insights to help you enhance compliance and optimize your global tax position.

    Why Choose Vigor Accounting & Taxation?

    At Vigor Accounting & Taxation, we promise businesses to offer them the best transfer pricing services to be able to comply the duties of the tax system that the UAE government has imposed. Our team consists of several experts who are working in the field of transfer pricing and who have acquired great practical skills in accounting and finance matters as well as the legal know-how of tax compliance issues under the tax laws of the country.

    Key Benefits of Working with Us:

    • Proficiency in UAE Transfer Pricing Laws

      Our team makes it a precedent to stay informed about the newest changes in UAE tax laws and pricing regulations to make your business afloat through the law.

    • Tailored Solutions

      Our transfer pricing specialists develop specific strategies that are designed for your business and its different needs. We basically see to it that your related-party transactions comply with the arms-length principle.

    • Resourceful Assistance

      Our transfer pricing services extend from helping you with the documentation to handling audits. Our end-to-end services help you with compliance and risk management.

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