A Local File and Master File are required in the UAE once a Taxable Person's revenue reaches AED 200 million, or the group's consolidated revenue reaches AED 3.15 billion, under Ministerial Decision No. 97 of 2023. Below those thresholds, related-party and connected-person transactions still need to be priced at arm's length and supported by a benchmarking study wherever material - the documentation obligation and the pricing obligation are separate things.
This article covers how a UAE benchmarking study is built, what the Local File and Master File actually contain, why Free Zone status raises the stakes, and how intercompany loans and management fees should be evidenced. Choosing an adviser is covered in Best Transfer Pricing Firm in UAE. The wider compliance map - disclosure, Small Business Relief and the return - is in Transfer Pricing Services in Dubai, UAE.
The benchmarking study: the analytical core of UAE transfer pricing documentation
A benchmarking study identifies comparable, independent companies or transactions - typically drawn from databases such as Bureau van Dijk Orbis, Amadeus, or TP Catalyst, with specialised sources for loans and royalties - selects the right profit level indicator, and computes an arm's-length interquartile range. It sits inside the wider Corporate Tax framework of Federal Decree-Law No. 47 of 2022 and the transfer pricing documentation rules of Ministerial Decision No. 97 of 2023, both interpreted by the FTA through the OECD Transfer Pricing Guidelines.
A benchmarking study is:
-
Mandatory wherever a Local File is required - revenue above AED 200 million, or an MNE group above AED 3.15 billion.
-
Strongly advisable to defend disclosed values wherever related-party transactions exceed AED 40 million in aggregate, or connected-person payments exceed AED 500,000.
-
The single strongest piece of evidence a business can hand an FTA auditor, even below the mandatory threshold.
Intercompany balance-sheet items - a loan balance, not just P&L transactions - count toward the AED 40 million aggregate, a detail many businesses miss until it is too late. How the comparable set is actually built is covered in selecting reliable comparables for UAE transfer pricing; how often to refresh it is in how often UAE companies should update TP benchmarking.
When does a UAE business need a Local File and Master File?
A UAE Taxable Person meeting either of the Ministerial Decision No. 97 thresholds - AED 200 million of revenue at entity level, or AED 3.15 billion of consolidated MNE group revenue - must maintain the prescribed transfer pricing documentation. The Local File is not simply a folder of benchmarking reports: the FTA Transfer Pricing Guide (CTGTP1) expects detailed information about the UAE entity, its business and strategy, management structure, material categories of controlled transactions, functional analysis, method selection, tested-party analysis where relevant, financial information and supporting agreements - following the OECD Local File framework.
The FTA can request the Master File and Local File, and the Corporate Tax Law provides a 30-day period for submission unless a longer period is agreed. Thirty days is enough time to retrieve an existing file - it is not a comfortable period in which to reconstruct a group's functions, intercompany agreements, segmented accounts and benchmarking analysis for the first time.
Where a group operates only within the UAE with no foreign entities, the Master File requirement is typically not triggered - but the Local File still applies once the AED 200 million revenue threshold is crossed. A Country-by-Country report is a separate, additional requirement for MNE groups with consolidated revenue exceeding AED 3.15 billion.
What the file should contain in practice is set out in UAE Local File: what it should contain and how businesses should prepare and Does your multinational group actually need a UAE Master File?.
Segmented P&L: the overlooked piece of transfer pricing documentation
Where an entity operates across multiple business lines, products, services or geographies, consolidated financials can distort the true profitability of the specific controlled transaction being tested. A properly prepared segmented / disaggregated P&L - isolating direct costs before applying allocation keys, applying those allocation methodologies consistently year-on-year, and reconciling back to the audited or statutory financials - is what separates a benchmarking study that survives FTA scrutiny from one that does not.
Common gaps include inconsistent allocation keys, unsupported cost allocations, unclear segment definitions, and segmented P&Ls that do not reconcile to the statutory accounts - any of which can undermine the reliability of the profit level indicator and the benchmarking conclusion.
Why is transfer pricing especially important for UAE Free Zone companies?
Because transfer pricing is not peripheral to Qualifying Free Zone Person status. A Free Zone Person seeking to be treated as a Qualifying Free Zone Person must comply with the transfer pricing rules and the applicable documentation requirements. That changes the risk calculus: for an ordinary 9% taxpayer, an unsupported Related Party price may simply result in a Corporate Tax adjustment. For a QFZP, transfer pricing compliance also sits within the wider set of conditions supporting access to the Free Zone regime itself.
The Local File rules recognise this rate differential directly - controlled transactions with a UAE Resident Person subject to a different Corporate Tax rate, including transactions involving a Qualifying Free Zone Person, are among the categories relevant to Local File documentation. A mainland-to-Free-Zone management charge, distribution margin, service fee or financing arrangement should never be dismissed just because both legal entities are incorporated in the UAE. Losing QFZP status through a failed related-party condition can mean disqualification for the current tax period and the following four periods - turning a documentation gap into a multi-year exposure.
How should intercompany loans be benchmarked in the UAE?
An intercompany loan is a controlled transaction like any other. The FTA has specifically confirmed, in its Transfer Pricing Guide, that loans obtained from or granted to Related Parties and Connected Persons must be considered under the transfer pricing rules, including the interest rate, duration and other terms.
A proper financing analysis does not begin by searching for "UAE loan rates" - it begins with the borrower. Creditworthiness, currency, tenor, security, ranking, purpose of the borrowing, repayment profile, guarantees, market conditions and transaction date all influence the arm's length price. Only after establishing those characteristics does external loan or bond market data become meaningful. This is one of the areas where the database and methodology used by a transfer pricing consultant matter far more than the polish of the final report.
A nil or below-market rate is still a pricing position that has to be supported - see interest-free related-party loans and intercompany guarantees.
Why are management fees and intragroup services a recurring UAE issue?
Because proving the mark-up is only half the exercise. Before benchmarking a management fee or service charge, the UAE recipient should be able to demonstrate what was actually received, why the service was needed, how the cost pool was constructed, and why the allocation key reflects the benefit obtained. A 5% mark-up on the wrong cost base does not become correct simply because 5% appears in a published benchmark.
The economic analysis should therefore begin with the nature of the service and the benefit to the recipient, before moving to the cost base, allocation mechanism and arm's length return. This becomes particularly important where regional headquarters in Dubai recharge finance, HR, IT, legal, procurement, management or marketing functions across the GCC. See management fees in the UAE and how a UAE headquarters should charge GCC subsidiaries.
What about shareholder costs?
A shareholder activity is not automatically a service to the subsidiary. Costs incurred because an entity is acting in its capacity as shareholder - rather than providing a benefit that an independent subsidiary would have paid for - require separate consideration. This is why management-fee benchmarking performed solely by calculating a cost pool and adding a mark-up can be misleading. The defensible sequence is benefit first, allocation second, price third.
How should remuneration paid to owners and directors be treated?
Article 36 of the Corporate Tax Law restricts the deductibility of payments or benefits to Connected Persons by reference to Market Value and a business-purpose test. The FTA's own guidance uses an owner's salary as a worked example of a Connected Person payment requiring support. Connected Person disclosure is triggered separately from the Related Party schedule, at an aggregate threshold of AED 500,000 - smaller in absolute terms than the AED 40 million Related Party threshold, which is exactly why family-owned and owner-managed UAE businesses cannot assume transfer pricing is a large-multinational problem.
Does the UAE offer an Advance Pricing Agreement route for recurring transfer pricing issues?
Yes. The FTA's Advance Pricing Agreement guide explains that Article 59 permits an APA application for Controlled Transactions, intended to provide prospective certainty and reduce TP disputes. The guide covers unilateral APAs and explains the role of bilateral APAs in addressing double-taxation risk, with submissions accepted from 30 December 2025. For a large, recurring transaction, adviser capability should include the ability to compare ordinary annual compliance against the economics and certainty of an APA - not merely produce another benchmark every year.
A practical documentation checklist before an FTA request lands
| Record | Why it matters | When to prepare |
|---|---|---|
| Related Party and Connected Person map | Basis for every disclosure schedule and Local File scope | At the start of each Tax Period, updated for new entities and relationships |
| Intercompany agreements | Must match the pricing method and actual conduct | Before the transaction begins - contemporaneous, not backdated |
| Benchmarking study | Evidences the arm's length range for the tested transaction | Before filing; refreshed on a reasonable cycle (typically annually or triennially) |
| Segmented P&L | Isolates the profitability of the tested transaction from consolidated results | At year-end, reconciled to statutory financials |
| Local File | Full economic and functional analysis at entity level | Contemporaneously; ready to submit within 30 days of an FTA request |
| Master File | Group-level overview of value drivers and TP policy | Where the group has foreign entities and meets the revenue threshold |
Frequently asked questions
When does a UAE business need a Local File and Master File?
A Master File and Local File are generally required where the UAE Taxable Person's revenue is at least AED 200 million, or the Taxable Person belongs to an MNE group with consolidated revenue of at least AED 3.15 billion, subject to the detailed rules in Ministerial Decision No. 97 of 2023.
Does a Free Zone company need transfer pricing documentation?
Yes, where applicable. Compliance with the transfer pricing rules and relevant documentation requirements is also a condition associated with Qualifying Free Zone Person status, not a separate, optional workstream.
Does an intercompany loan need benchmarking in the UAE?
Yes. The FTA confirms that loans involving Related Parties and Connected Persons must be considered under the arm's length principle, including terms such as the interest rate and duration - not just the headline rate.
How quickly must a Local File be provided if the FTA asks for it?
Article 55 provides for the prescribed Master File and Local File documentation to be submitted within 30 days following an FTA request, unless a longer period is agreed - which is why contemporaneous preparation matters far more than a well-written report produced after the fact.
Is a 5% mark-up automatically acceptable for management services in the UAE?
No. The FTA guidance provides a simplified approach for qualifying low value-adding intra-group services, but the underlying eligibility conditions matter. A generic management charge does not become arm's length merely because the mark-up is 5%.
Are Advance Pricing Agreements available in the UAE?
Yes. The UAE has an APA programme under Article 59, with FTA guidance explaining the process and the role of unilateral and bilateral APAs, with submissions accepted from 30 December 2025.
Which transfer pricing consultant should a UAE business appoint for benchmarking and documentation?
Choose the firm with the strongest fit for the transaction being tested - relevant considerations include benchmarking databases and methodology, sector understanding, Free Zone and QFZP experience, implementation capability, and FTA controversy experience. See Best Transfer Pricing Firm in UAE for the evaluation framework.
Primary sources and further reading
How SBC Tax Consulting can help
SBC's transfer pricing team prepares contemporaneous Local Files and Master Files, runs defensible benchmarking searches, and prices Free Zone, loan and management-fee arrangements so the file can be produced within 30 days of an FTA request. Contact SBC before the next Corporate Tax filing or documentation deadline.
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.