Understanding Transfer Pricing: Basics, Methods, and Relevance in UAE Corporate Tax Law
Transfer Pricing is a vital concept in global business operations and international taxation. As businesses expand across borders and diversify operations, transactions between different divisions or entities within the same organization—especially across different jurisdictions—become inevitable. In such scenarios, Transfer Pricing becomes a crucial part of corporate tax compliance and financial strategy.
As one of the best Accounting & Business Consulting firms in Dubai, TFAB helps businesses across the UAE understand and implement transfer pricing strategies that align with international standards and the UAE Corporate Tax Law.
What is Transfer Pricing?
Transfer Pricing refers to the prices charged for goods, services, or intangible assets transferred between related entities within the same corporate group. These may include different branches, subsidiaries, or divisions of a single business entity. For example, if a manufacturing unit of a company in India sells products to its distribution wing in Dubai, the price at which these goods are transferred is called the transfer price.
The main objective of transfer pricing is to ensure that intra-group transactions are conducted as if the entities were independent and dealing at arm’s length—a principle recognized globally by frameworks such as the OECD Transfer Pricing Guidelines, IFRS, US GAAP, and now, the UAE Corporate Tax Law.
Purpose of Transfer Pricing
Establishing transfer pricing policies serves several essential purposes:
- Tax compliance: Ensures fair allocation of profits among jurisdictions to comply with international tax laws.
- Performance evaluation: Measures the financial performance of each business unit effectively.
- Resource allocation: Optimizes internal pricing and resource utilization.
- Regulatory transparency: Minimizes risks of tax avoidance and double taxation by adhering to global documentation standards.
Commonly Used Methods of Transfer Price Determination
There are four widely accepted methods to determine transfer prices:
- Variable Cost Method
- Full Absorption Cost Method
- Market Price Method
- Negotiated Price Method
Choosing the right method depends on the nature of the transaction and the regulatory environment of the jurisdictions involved.
Transfer Pricing Under UAE Corporate Tax Law
With the introduction of the UAE Corporate Tax (CT) Law, effective from June 1, 2023, transfer pricing compliance has become mandatory for companies operating in the UAE, especially those engaged in related party transactions.
Key Points for Businesses to Consider:
- UAE CT Law enforces the arm’s length principle.
- Companies must maintain detailed transfer pricing documentation, including a Master File and Local File, depending on revenue and transaction thresholds.
- Advance Pricing Agreements (APAs) may be introduced in the future.
- The rules apply to both domestic and international related party transactions.
Non-compliance can lead to audits, penalties, and reputational damage. As one of the Top Accounting firms in Dubai, TFAB offers comprehensive solutions to ensure compliance with the latest transfer pricing regulations.
Secure Your Transfer Pricing Strategy with TFAB – One of the Top Accounting Firms in Dubai
Transfer pricing is more than just a compliance requirement—it is a strategic tool for financial control, regulatory alignment, and global tax efficiency. In the UAE’s evolving tax landscape, understanding and implementing a robust transfer pricing policy is vital for companies operating across borders.
At TFAB, our team of transfer pricing specialists in Dubai provides tailored solutions to help you remain compliant with both UAE Corporate Tax Law and international standards. From documentation and policy design to benchmarking and tax authority representation, we deliver end-to-end support.
Partner with TFAB—your trusted advisor among the Top Accounting firms in Dubai—and future-proof your business today.
Contact us to schedule your consultation.