Cost Plus Method (CPM) for Manufacturers & Services
Official Principle: "Adds appropriate gross profit markup to direct and indirect costs incurred by related party supplier." — Добавляет рыночную наценку к прямым и косвенным затратам поставщика внутри группы.
📊 Regulatory Parameters & Compliance Table
| Documentation Level | Threshold / Applicability | Required Filing | Regulatory Scrutiny |
|---|---|---|---|
| Arm’s Length Principle | All transactions with Related Parties | Contractual benchmarking | Mandatory under Art. 34 |
| Local File | Revenue > AED 200M or MNE group | Detailed entity analysis | Submission within 30 days of request |
| Master File | MNE Group Turnover > AED 3.15B | Global group blueprint | OECD BEPS Action 13 compliant |
| Disclosure Form | Annual Tax Return submission | Schedule of related transactions | Verified by Tax Authority |
✓ Mandatory Compliance Action Steps:
- Identify and catalog all Related Parties and Connected Persons under Article 35 of Decree-Law No. 47
- Benchmark cross-border intercompany fees against independent market transactions
- Draft formal intercompany service agreements prior to transaction execution
- Maintain Transfer Pricing documentation file ready for 30-day FTA audit notice
- Complete Transfer Pricing disclosure schedule within the corporate tax return
1. Core Statutory Provision & Key Legal Rule
"Adds appropriate gross profit markup to direct and indirect costs incurred by related party supplier."
"Добавляет рыночную наценку к прямым и косвенным затратам поставщика внутри группы."
2. Practical Application for UAE Businesses
Under the UAE federal tax framework governed by OECD TP Guidelines & Art. 34(3), all taxable persons registered across Mainland jurisdictions and Free Zones (including Meydan, DMCC, DIFC, IFZA, DAFZA, and JAFZA) must align their accounting policies with this requirement.
- IFRS Accounting Standard: Financial statements must be prepared in accordance with International Financial Reporting Standards (IFRS or IFRS for SMEs).
- Record Retention: Primary accounting records, bank reconciliations, contracts, and tax filings must be archived for a minimum statutory period of 7 years.
- Audit Readiness: The Federal Tax Authority reserves statutory rights to request ledgers and supporting invoices during an official tax audit with a 5-day response window.
3. FTA Administrative Penalties (Cabinet Decision No. 75/2023)
Failure to register, inaccurate return filing, or violation of OECD TP Guidelines & Art. 34(3) exposes the taxable entity to administrative fines starting from AED 10,000 up to AED 20,000 per incident, plus 1% monthly late-payment penalties.
Solution: Timely registration through the FTA EmaraTax portal and voluntary disclosure (Form 211) before an official audit notice is served.
Have Questions Regarding Cost Plus Method (CPM) for Manufacturers & Services?
Our licensed tax consultants and certified auditors in Meydan Free Zone, Dubai will review your contracts, calculate exact tax liability, and safeguard your company from FTA penalties.