In Saudi Arabia, whether you must prepare a transfer pricing Local File and Master File depends on how large your related-party dealings are and whether you pay tax or zakat. Under Articles 16 and 17 of the KSA Transfer Pricing Bylaws, taxpayers and mixed entities cross the line at SAR 6 million of controlled transactions, while zakat payers are phased in against SAR 48 million and SAR 100 million thresholds.
Key takeaways
- The Local File documents an entity's own controlled transactions and proves they are priced at arm's length; the Master File gives a group-level view of the multinational's structure, operations and transfer pricing policies.
- Taxpayers and mixed companies must maintain both files once their controlled transactions exceed SAR 6 million a year, and are exempt at or below that figure.
- Zakat payers are phased in: for FY 2024 to 2026, files are exempt up to SAR 48 million, optional between SAR 48 million and SAR 100 million, and mandatory above SAR 100 million.
- From FY 2027, the zakat-payer threshold drops so that both files become mandatory above SAR 48 million.
- Neither file is filed with ZATCA. They are maintained internally and must be produced within 30 days of a formal request.
- Both files must be refreshed every financial year with updated entity data, financials and benchmarking.
What the Local File and Master File actually do
The Local File and Master File answer different questions. The Local File is entity-specific: it sets out the taxpayer's controlled transactions, the related parties involved, the intercompany agreements, and the functional analysis (who does what, who owns what, and who bears which risks, often shortened to FAR) that supports the chosen transfer pricing method. It is where you demonstrate that each transaction sits within an arm's length range.
The Master File zooms out to the whole multinational group. It describes the group's legal and operational structure, its key value drivers and supply chain, its intangibles and the DEMPE functions behind them (development, enhancement, maintenance, protection and exploitation of intellectual property), its intercompany financing, and the group-wide transfer pricing policies, rulings and advance pricing agreements. Together the files let ZATCA see both the local detail and the global context.
When do the Local File and Master File become mandatory?
Both files become mandatory once controlled transactions cross a set threshold, and that threshold differs by taxpayer category. Taxpayers and mixed companies are tested against a single SAR 6 million line. Zakat payers are eased in over two phases, reflecting that transfer pricing is newer for them. The table below sets out the current position.
| Taxpayer type | Period | Controlled transactions | Local & Master File |
|---|---|---|---|
| Zakat payers | Phase 1 (FY 2024 to 2026) | Up to SAR 48 million | Exempt |
| Zakat payers | Phase 1 (FY 2024 to 2026) | Above SAR 48m up to SAR 100 million | Optional |
| Zakat payers | Phase 1 (FY 2024 to 2026) | Above SAR 100 million | Mandatory |
| Zakat payers | Phase 2 (FY 2027 onwards) | Above SAR 48 million | Mandatory |
| Taxpayers / mixed companies | All periods | Above SAR 6 million | Mandatory |
| Taxpayers / mixed companies | All periods | Up to SAR 6 million | Exempt |
Zakat payers in the SAR 48 million to SAR 100 million band during FY 2024 to 2026 can choose to prepare the files even though they are not obliged to, and doing so early is often sensible given the Phase 2 tightening. Natural persons and small taxpayers below these thresholds fall outside the Local and Master File net, but not outside transfer pricing altogether, because the disclosure form and General Documentation still apply.
Filing versus maintaining
Neither file is submitted with your return. They must be kept current and handed to ZATCA within 30 days of a formal request, which is far too little time to write them from scratch. Treat contemporaneous preparation as the deadline, not the request.
The Disclosure Form of Controlled Transactions is filed with the return by 30 April, but the Local File and Master File stay in your own records — a distinction newcomers often miss. ZATCA strongly recommends that both be updated as at the date of the return filing and maintained contemporaneously.
Benchmarking cannot be left to go stale, because the files must be refreshed each financial year. Updated entity information, current financial data and fresh comparable results are all expected. ZATCA is more likely to challenge a file that leans on outdated benchmarks, that shows a thin functional analysis, or that contradicts the audited financial statements or the disclosure form. Cross-border groups should make sure the international tax picture in the Master File matches what each local entity reports. In practice, SBC advisers find that refreshing benchmarks and the functional analysis at year-end, while the facts are still fresh, beats reconstructing them under a 30-day request.
Frequently asked questions
Who needs a Local File and Master File in Saudi Arabia?
Taxpayers and mixed companies need both files once their controlled transactions exceed SAR 6 million in a year. Zakat payers need them above SAR 100 million during FY 2024 to 2026 (optional between SAR 48 million and SAR 100 million), and above SAR 48 million from FY 2027. Natural persons and smaller taxpayers are exempt.
What is the difference between the Local File and the Master File?
The Local File covers one entity's controlled transactions, related parties and functional analysis, and proves those transactions are at arm's length. The Master File gives a high-level overview of the whole multinational group: its structure, value chain, intangibles, financing and global transfer pricing policies.
Do I file the Local File and Master File with ZATCA?
No. Both are maintained internally rather than filed with the return. They must be produced within 30 days of a formal ZATCA request, so they should be prepared contemporaneously and updated as at the date the tax or zakat return is filed.
How often must the files be updated?
Every financial year. The Local File and Master File must be refreshed with updated entity information, current financial data and the latest available benchmarking, because reliance on outdated comparables is one of the triggers that prompts ZATCA scrutiny.
How SBC Tax Consulting can help
SBC prepares audit-ready Local Files and Master Files aligned with the KSA Transfer Pricing Bylaws, including detailed FAR analysis, method selection and defensible benchmarking from reliable databases. We keep your documentation consistent with the disclosure form and audited accounts, refresh it each year, and provide 30-day readiness and audit and dispute support if ZATCA calls. To scope your transfer pricing documentation, contact our team.
This publication is for general information only and does not constitute professional advice. Please consult your SBC advisor before acting on any matter covered here.