With the introduction of Corporate Tax in the UAE and alignment with OECD Base Erosion and Profit Shifting (BEPS) guidelines, Transfer Pricing (TP) compliance has become a key priority for businesses. The requirement for maintaining robust Transfer Pricing documentation — specifically the Master File and Local File — is critical for multinational entities and related-party businesses operating in or through the UAE.
This blog provides a comprehensive overview of the Master File and Local File documentation requirements under UAE’s transfer pricing regulations, including thresholds, content expectations, timelines, and the strategic importance of proper documentation.
Understanding the UAE Transfer Pricing Framework
The UAE’s Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses mandates the arm’s length principle for transactions between related parties and connected persons. In addition to applying appropriate TP methods, companies are also required to maintain documentation proving the basis of these transactions.
The two key documents required under the UAE TP regime are:
- Master File – A global overview of the multinational group’s business operations, transfer pricing policies, and allocation of income and economic activities.
- Local File – A detailed analysis of intercompany transactions specific to the UAE entity, including pricing, comparables, and functional analysis.
Who Needs to Prepare the Master and Local File?
The requirement to maintain Master and Local Files applies to UAE businesses that meet either of the following thresholds:
- Part of a Multinational Enterprise (MNE) group with a consolidated revenue of AED 3.15 billion or more in the relevant financial year.
- Engaging in cross-border transactions with related parties, regardless of total revenue, where the Federal Tax Authority (FTA) requires TP documentation.
Failure to comply with TP documentation requirements may lead to penalties, audit adjustments, and potential reputational damage.
What Should the Master File Include?
The Master File offers a high-level overview of the MNE group’s global operations. It must include:
- Organizational Structure: A chart of the legal and ownership structure of the group.
- Group’s Business Description: Industry overview, key drivers of profits, and supply chain details.
- Intangibles: Information on intangibles owned and used by the group, including R&D strategy and IP ownership.
- Financial Arrangements: Intercompany financing, including terms and pricing of loans.
- Tax and Financial Position: Group-wide consolidated financial statements and a general tax position overview.
Although the Master File provides a group-wide perspective, it forms a vital foundation for supporting TP compliance at the local level.
What Should the Local File Contain?
The Local File zeroes in on the UAE taxpayer’s specific intercompany transactions and substantiates that they are conducted at arm’s length. Key contents include:
- Local Entity Overview: Management structure, business strategy, and industry profile.
- Related Party Transactions: Nature, value, and purpose of each intercompany transaction.
- Functional Analysis: Detailed description of functions performed, risks assumed, and assets used (FAR analysis).
- Economic Analysis: Benchmarking studies and comparables used to justify pricing policies.
- Financial Information: Financial statements of the UAE entity and reconciliations with transactions reported.
Each transaction type (e.g., services, royalties, loans) should be separately analyzed and documented.
When Must These Files Be Prepared?
While there is no mandatory submission of the Master File or Local File unless requested, they must be made available to the FTA within 30 days of such a request. Best practice recommends preparing these files annually in line with the financial year-end.
In addition, taxpayers meeting the threshold must also file a Transfer Pricing Disclosure Form along with their Corporate Tax return.
PEAK Business Consultancy Services: Your Compliance Partner
Given the complexity of TP compliance and the high stakes involved, it is crucial to work with professionals who understand both local laws and international tax standards.
PEAK Business Consultancy Services is a leading VAT and Corporate Tax advisory firm in the UAE. We help businesses:
- Determine applicability of Master and Local File requirements
- Prepare complete and audit-ready documentation
- Conduct FAR analyses and benchmarking studies
- Align TP policies with UAE VAT and Corporate Tax compliance
- Manage communications with the Federal Tax Authority
To ensure your company is fully compliant and well-prepared for audits, visit PEAK Business Consultancy Services and schedule a strategic consultation.
Why TP Documentation Matters
Proper TP documentation is not just about avoiding penalties. It also demonstrates your organization’s commitment to fair tax practices and transparency. In the event of an audit, timely and thorough documentation can substantially reduce your risk exposure and strengthen your negotiating position.
Moreover, as the UAE enters a new era of tax regulation, maintaining accurate and complete TP documentation will be crucial to navigating global tax audits and complying with international information exchange protocols.
Conclusion
The Master File and Local File are integral components of a robust transfer pricing compliance framework in the UAE. As businesses grow and engage in increasingly complex intercompany arrangements, the importance of having detailed, accurate, and timely documentation cannot be overstated.
PEAK Business Consultancy Services is here to guide your business every step of the way—from identifying reporting obligations to compiling defensible TP files. Don’t wait until an audit to prepare. Act now to safeguard your tax integrity and operational continuity.
Contact us or explore our services at https://www.peakbcs.com/.
