Benchmarking Reports in the UAE: Essential Guidance for CFOs & Finance Leaders 

Key Takeaway: UAE businesses must benchmark all related party transactions for audit and tax compliance. Benchmarking reports are now mandatory for auditor sign-off and FTA compliance under Federal Decree-Law No. 47 of 2022.

What Is Benchmarking in Corporate Tax in the UAE?

Benchmarking in UAE corporate tax is the process of comparing related party transactions and connected person payments against market rates to ensure compliance with the arm’s length principle. It involves analyzing comparable transactions between independent parties to validate that your pricing is fair and commercially reasonable.

Under the UAE Corporate Tax Law, benchmarking serves as independent, third-party validation that transactions comply with market standards, supporting both audit requirements and FTA compliance.

As the UAE transitions into a formal corporate tax regime under Federal Decree-Law No. 47 of 2022, the approach to related party (RP)/payments to connected persons (CP) transactions has become significantly more structured and scrutinized. For CFOs and finance leaders managing UAE operations, understanding benchmarking requirements is critical for maintaining compliance and avoiding costly audit delays.

Benchmarking is a key pillar in UAE transfer pricing regulations, especially when combined with benchmarking analysis for UAE transfer pricing. A key expectation emerging from this shift is the requirement for benchmarking reports—both from auditors and the Federal Tax Authority (FTA).

What was once viewed as a best practice is now seen as a critical compliance tool. In fact, auditors are increasingly requiring benchmarking reports to sign off financial statements, especially where significant transactions with related parties or connected persons are involved.

Why Robust Transfer Pricing Documentation Matters

Auditors are intensifying their focus on related party transactions. Effective preparation eliminates uncertainty and ensures compliance under scrutiny. Companies must have readily available, robust transfer pricing documentation and analysis that unequivocally proves all related party transactions were conducted at arm’s length, as if between independent entities.

When auditors arrive to verify authenticity, your company should be fully equipped to demonstrate clear, undeniable compliance with arm’s length principles, eliminating any room for doubt or challenge.

This comprehensive transfer pricing documentation is not just a regulatory formality; it’s your company’s frontline defense. Comprehensive documentation is your organization’s best protection—ensuring audit readiness and minimizing risk.

The Theoretical Basis: Arm’s Length Principle (ALP)

The cornerstone of UAE’s transfer pricing regime is the arm’s length principle, aligned with OECD guidelines. Under this principle, the terms and conditions of transactions between related parties and payments made to connected persons must be consistent with those that would be agreed upon between independent entities in comparable circumstances.

Practical Application Examples

Example 1: A UAE subsidiary pays AED 500,000 annually to its parent company for management services. Benchmarking would compare this fee against what independent companies charge for similar services in the UAE market.

Example 2: A director receives AED 2 million in annual compensation. Benchmarking would analyze compensation packages for similar roles in comparable UAE companies to ensure the amount reflects market value.

Auditors and tax authorities alike are now applying this principle across a broad spectrum of transactions. This includes not just traditional TP areas like cross-border services or royalties, but also domestic transactions, such as salaries to shareholder-directors, intra-group loans, and shared services.

Why Benchmarking is No Longer Optional

Benchmarking reports serve as independent, third-party validation that a transaction complies with the arm’s length standard.

Here’s why benchmarking is non-negotiable:

1. Accounting Finalisation Depends on It – Especially for Connected Persons and Related Party Transactions: If remuneration to connected persons (like directors or KMPs) is not benchmarked to an arm’s length standard, accounting entries for employee benefits may be challenged and left unresolved.
2. Auditors Require It to Sign Off: Auditors are increasingly flagging the absence of benchmarking for key intercompany transactions and connected person payments as a limitation or even a qualification point. They need reliable third-party data to support disclosures and avoid exposure.
3. Corporate Tax Filing Risks: Without benchmarking, companies risk under- or over-reporting income or expenses, which can result in tax adjustments, penalties, or worse, tax audits.

For example:

• If a connected person’s salary is excessive compared to market standards, the deduction may be disallowed.
• If related party transactions are not aligned with market value, profits may be re-allocated, triggering additional tax liabilities.

4. Compliance Across Functions: Benchmarking underpins financial reporting (accounting), audit readiness (assurance), and tax compliance. A gap in one affects the integrity of the others.

Proper documentation such as KMP and local file reports support the accuracy of a benchmarking report UAE.

Practical Approaches to Benchmarking Compensation and Related Party Transactions

UAE businesses can use several methodologies to benchmark their related party transactions effectively:

Keep an eye for transactions with Connected Persons

Benchmarking transactions with connected persons—such as directors, partners, KMPs, officers and their relatives—is especially critical in the UAE, where no personal income tax increases the risk of profit shifting through inflated salaries or benefits.

Under Article 28 of the Corporate Tax Law, such payments are only deductible if they reflect market value and are incurred wholly and exclusively for business purposes.

Without proper benchmarking, these payments may be recharacterized as disguised profit distributions, leading to disallowed deductions, tax adjustments, and potential penalties. A robust benchmarking study ensures transparency, supports deductibility, and safeguards against regulatory challenges—turning risk into compliance readiness.

Risks of Inadequate Benchmarking Documentation

Failure to produce adequate benchmarking can expose businesses to:

• Disallowed tax deductions for non-arm’s length payments: Under Article 25 of the UAE Corporate Tax Law, expenses not incurred wholly and exclusively for business purposes—such as excessive payments to related or connected persons—may be denied as deductions, increasing taxable income.
• FTA scrutiny and adjustments to taxable income: The FTA may review related party transactions and revise income figures if pricing is not supported by arm’s length evidence.
• Penalties and interest on underpaid tax: Failure to apply proper TP standards can lead to back taxes, interest, and financial penalties imposed by the FTA.
• Audit delays or qualified opinions, impacting investor confidence: Missing benchmarking reports can delay audit sign-offs or result in qualifications, eroding the trust of shareholders and lenders.
• Reputational damage and strained stakeholder relationships: Non-compliance with TP rules may signal weak governance and transparency, affecting credibility with regulators, investors, and partners.

Data Sources and Tools for Benchmarking in the UAE

Reliable data sources are essential for credible benchmarking studies. Here are the most commonly used resources:

Commercial Databases

• Bureau van Dijk (Orbis, Amadeus)
• S&P Capital IQ
• Thomson Reuters Eikon

Regional Sources

• UAE Ministry of Economy industry reports
• Dubai Chamber of Commerce salary surveys
• GCC financial services benchmarks

Key Considerations for Businesses

To comply effectively with both audit and transfer pricing (TP) requirements, businesses must first identify all material transactions involving related parties and connected persons.

They should then assess whether appropriate benchmarking support is already in place or needs to be prepared.

Benchmarking reports should be reviewed and updated annually, or whenever there is a significant change in the transaction terms.

Engaging TP advisors early—particularly for complex or cross-border arrangements—can help ensure that documentation is accurate, defensible, and aligned with current regulatory expectations.

BCL Globiz Benchmarking Compliance Checklist

Use this step-by-step framework to ensure your benchmarking readiness:

1. Identify all related party and connected person transactions
2. Determine materiality thresholds for benchmarking
3. Select appropriate benchmarking methodology
4. Gather comparable data from reliable sources
5. Perform statistical analysis and document findings
6. Prepare formal benchmarking report
7. Review and update annually or when terms change

Frequently Asked Questions

What is benchmarking in corporate tax UAE?

Benchmarking in UAE corporate tax is the process of comparing related party transactions and connected person payments against market rates to ensure compliance with the arm’s length principle. It provides independent validation that your pricing is commercially reasonable and supports both audit and FTA compliance requirements.

What are the main methods used for benchmarking related party transactions in the UAE?

The main methods include: 1) Internal CUP (comparing with your own independent transactions), 2) External CUP (comparing with market transactions), 3) Profit-based methods (analyzing margins and returns), and 4) Hybrid approaches that combine multiple methods for comprehensive analysis.

When is benchmarking required for UAE corporate tax compliance?

Benchmarking is required for all material related party transactions and connected person payments, especially director compensation, management fees, and intercompany services. It’s essential for audit sign-off and mandatory for FTA compliance under the UAE Corporate Tax Law.

How often should benchmarking studies be updated?

Benchmarking studies should be updated annually or whenever there are significant changes in transaction terms, business circumstances, or market conditions. Regular updates ensure continued compliance and audit readiness.

Conclusion: Benchmarking as the First Line of Defence

To perform benchmarking effectively, businesses must first identify their related parties in UAE transfer pricing.

In the current UAE regulatory and audit environment, benchmarking is no longer a compliance formality—it’s a necessity. It provides the empirical evidence needed to:

• Finalize financial audits without qualification
• Satisfy the FTA’s expectations during a TP review
• Maintain transparent, defensible disclosures in financial statements

Whether it’s a salary to a shareholder, a management fee from HQ, or a loan to a group entity, each transaction involving related parties must now be benchmarked, documented, and ready to withstand scrutiny.

Lead with evidence, not assumptions. A benchmarking report is no longer just good practice—it’s your ticket to clean audits and compliant tax filings.

What to Do Next

Ready to ensure your benchmarking compliance? Here are your next steps:

1. Review all your related party and connected person transactions
2. Assess your current benchmarking documentation
3. Identify gaps in your compliance framework
4. Contact BCL Globiz for expert benchmarking support

Reach Out To Us Today at info@bcl.ae