# UAE Transfer Pricing Local File Requirements: What You Need to Know For CFOs, finance managers, and business owners navigating UAE transfer pricing regulations, understanding Local File requirements is critical to avoid penalties and ensure compliance. ## Key Takeaways - UAE businesses must prepare Local Files if they are part of an MNE group with AED 3.15 billion or more in consolidated revenue, or if the individual taxable person has AED 200 million or more in revenue. - Local Files must document relevant controlled transactions with non-residents, exempt persons, and entities subject to different tax rates. - Documentation must be submitted to the Federal Tax Authority within 30 days of request and should include functional analysis, transfer pricing methods, benchmarking, and financial data. - All related party and connected person transactions must comply with the Arm’s Length Principle, even where Local File requirements do not apply. ## Overview of Transfer Pricing in the UAE Transfer pricing in the UAE refers to the pricing of transactions between related entities within multinational groups. The UAE introduced comprehensive transfer pricing regulations in 2023, aligned with OECD BEPS Action 13 guidelines, to ensure profits are taxed where economic activities occur and value is created. These rules apply to businesses with significant cross-border related party transactions and require detailed documentation to demonstrate compliance with international standards. ## The Arm’s Length Principle The Arm’s Length Principle is the cornerstone of UAE transfer pricing regulations. It requires that the terms and conditions of controlled transactions between related entities be consistent with those that would have been agreed between independent entities under similar circumstances. This principle supports fair taxation and helps prevent profit shifting to low-tax jurisdictions. For example, if a UAE subsidiary purchases goods from its German parent company, the price charged should be comparable to what an independent German supplier would charge an unrelated UAE buyer for similar goods under similar conditions. ## Related Parties and Connected Persons Under UAE regulations, Related Parties and Connected Persons include entities where one party controls or significantly influences the other, or where both are under common control. This includes: - Parent and subsidiary companies, including direct or indirect ownership of 50% or more - Sister companies under common control - Entities with common management or significant influence - Permanent establishments of the same entity ## Transfer Pricing Methods Used in the UAE The UAE recognizes five primary transfer pricing methods aligned with OECD guidelines. | Method | Best Used For | Description | | --- | --- | --- | | Comparable Uncontrolled Price (CUP) | Commodity transactions | Compares prices charged in controlled transactions with prices in uncontrolled transactions | | Cost Plus Method | Manufacturing or production | Adds an appropriate markup to costs incurred | | Resale Price Method | Distribution activities | Subtracts an appropriate gross margin from the resale price | | Transactional Net Margin Method (TNMM) | Complex transactions | Examines net profit margin relative to an appropriate base | | Profit Split Method | Highly integrated operations | Splits combined profit based on each party’s contribution | ## UAE Transfer Pricing Documentation Requirements The UAE transfer pricing framework includes four main documentation requirements. | Document Type | Threshold | Submission Deadline | Purpose | | --- | --- | --- | --- | | Local File | AED 3.15 billion group revenue or AED 200 million entity revenue | Within 30 days upon FTA request | Documents local entity controlled transactions | | Master File | AED 3.15 billion group revenue | Within 30 days upon FTA request | Covers group-wide organization and operations | | Country-by-Country Report | AED 3.15 billion group revenue | 12 months after fiscal year-end | Provides high-level allocation of income and taxes | | Disclosure Form | AED 200 million entity revenue | With the Corporate Tax Return | Summarizes controlled transactions | ## When Is a Local File Required? The Local File is a key part of the UAE’s transfer pricing documentation framework. It provides detailed information about a taxpayer’s controlled transactions with Related Parties and Connected Persons during a specific tax period. Businesses operating in the UAE must prepare and maintain a Local File if they meet either of the following criteria: - The taxable person is part of a Multinational Enterprise group with total consolidated group revenue of AED 3.15 billion or more. - The taxable person’s revenue in the relevant tax period is AED 200 million or more. Even if these thresholds are not met, all transactions with Related Parties and Connected Persons must still comply with the Arm’s Length Principle. Taxpayers should maintain sufficient records to substantiate that compliance. ## What Must Be Included in a Local File? A Local File should include key details such as: - Information about the local entity, including its business, management structure, and strategy - A breakdown of all significant controlled transactions involving the entity - A clear description of each transaction - The value of the transactions - Details of the Related Parties involved - Functional analysis identifying the functions performed, assets used, and risks assumed by each party - The most appropriate transfer pricing method selected and the justification for its selection - Application of the selected method, including benchmarking analysis to demonstrate arm’s length pricing - Financial data used in the analysis - Relevant financial information of the local entity Ministerial Decision No. 97 of 2023 and the UAE transfer pricing guidelines, CTGTP1, define specific circumstances where a taxable person must document certain controlled transactions in the Local File. ## Controlled Transactions Requiring Documentation All controlled transactions must comply with the Arm’s Length Principle. However, under Ministerial Decision No. 97 of 2023, a taxable person is required to document the following types of controlled transactions in the Local File: - Transactions with non-resident persons, except for a permanent establishment of a non-resident person that is taxed at the same corporate tax rate as the taxable person - Transactions involving exempt persons, meaning entities not subject to Corporate Tax - Transactions with a resident person who benefits from Small Business Relief - Transactions with a resident person who is subject to a different corporate tax rate than the taxable person, such as a Qualifying Free Zone Person Examples of controlled transactions include: - A UAE subsidiary purchasing raw materials from its German parent company - Management fees charged by a UAE holding company to its subsidiaries - Licensing of intellectual property between related entities - Intercompany loans and financing arrangements ## Exempted Controlled Transactions Certain controlled transactions do not require inclusion in a Local File. These include: - Transactions with resident persons other than those specifically mentioned above, such as exempt persons, Small Business Relief beneficiaries, or persons subject to different tax rates - Domestic related party transactions between two resident persons subject to the same tax rate, provided there is no possibility of tax arbitrage - Transactions between the taxable person and natural persons, provided they operate independently of each other - Transactions involving a juridical person that qualifies as a Related Party or Connected Person solely because they are partners in an unincorporated partnership, provided they act independently - Transactions with a permanent establishment of a non-resident person, provided the permanent establishment is taxed at the same rate as the taxable person Even where a transaction is exempt from Local File inclusion, it must still comply with the Arm’s Length Principle. The Federal Tax Authority may request supporting documentation to verify the arm’s length nature of these transactions. ## Penalties for Non-Compliance Non-compliance with UAE transfer pricing regulations can result in significant penalties, including: - AED 10,000 for late submission of documentation - Up to AED 50,000 for failure to maintain proper documentation - Additional tax plus penalties of 20% to 50% of transfer pricing adjustments - Enhanced penalties and potential criminal prosecution for repeated non-compliance ## How to Comply with UAE Transfer Pricing Regulations The Local File is a key element of UAE transfer pricing compliance, alongside the Master File, Country-by-Country Report, and Transfer Pricing Disclosure Form. Businesses meeting the prescribed thresholds must maintain a Local File and other necessary documentation. The Local File and Master File, where applicable, should be prepared and maintained contemporaneously. The Local File is not submitted automatically with the Corporate Tax Return. However, it must be submitted to the Federal Tax Authority within 30 days of request. For companies that find transfer pricing documentation complex, professional transfer pricing advisory support can help ensure compliance with UAE tax regulations. ## How BCL Globiz Supports Local File Compliance BCL Globiz supports businesses with UAE transfer pricing documentation and Local File compliance, helping clients navigate Ministerial Decision No. 97 of 2023 and the UAE transfer pricing guidelines, CTGTP1. The firm assists with: - Identifying and documenting controlled transactions - Maintaining necessary financial records - Structuring transactions in line with the Arm’s Length Principle - Preparing robust Local File documentation - Conducting benchmarking analysis - Responding to Federal Tax Authority queries BCL Globiz positions its transfer pricing services around compliance, risk reduction, and streamlined documentation for UAE businesses and multinational groups. ### Why Choose BCL Globiz? - 100+ successful transfer pricing compliance projects - UAE-based team with local expertise - 24-hour response guarantee to FTA queries - Dedicated Manager and Account Executive for each client > “BCL Globiz made our UAE transfer pricing compliance effortless. Their expertise saved us from costly penalties and their response time is exceptional.” > — CFO, International Trading Group BCL Globiz’s stated mission is to empower businesses with expert tax guidance, supporting compliance, sustainable growth, and peace of mind. _Written by Rakesh, Senior Transfer Pricing Advisor at BCL Globiz_ ## Frequently Asked Questions ### Does the UAE have transfer pricing regulations? Yes. The UAE implemented comprehensive transfer pricing regulations in 2023 through Ministerial Decision No. 97 of 2023, aligned with OECD BEPS Action 13 guidelines. These rules apply to businesses with significant related party transactions. ### Who needs to comply with transfer pricing rules in the UAE? Businesses must comply if they are part of an MNE group with AED 3.15 billion or more in consolidated revenue, or if the taxable person has AED 200 million or more in revenue. However, all related party and connected person transactions must follow the Arm’s Length Principle regardless of thresholds. ### What are the penalties for non-compliance with transfer pricing in the UAE? Penalties include AED 10,000 for late document submission, up to AED 50,000 for inadequate documentation, and penalties of 20% to 50% on transfer pricing adjustments, plus additional tax. ### What is an example of a transfer pricing transaction? Common examples include: - A UAE subsidiary purchasing goods from its foreign parent company - Intercompany loans between related entities - Management fees charged between group companies - Licensing intellectual property within a multinational group ### What are the main transfer pricing methods used in the UAE? The UAE recognizes five OECD-aligned methods: - Comparable Uncontrolled Price method - Cost Plus Method - Resale Price Method - Transactional Net Margin Method - Profit Split Method The most appropriate method depends on the nature of the transaction and the availability of reliable data.