The UAE Transfer Pricing Local File

The Local File is one of the most important and complex pieces of transfer-pricing documentation a business may need to prepare. It supports the MNE Master File by bringing together the statements, analyses and benchmarking reports that demonstrate arm’s-length pricing.

This is an ongoing process of gathering and analysing data, not a document that can be assembled at short notice. When the FTA requests the information, the taxpayer may have only 30 days to produce it.

What is a Local File?

A Local File focuses on one entity in one jurisdiction. It explains whether and how that entity transacts with related parties and connected persons during a tax period.

Following the OECD approach in Annex II to Chapter V, the UAE introduced Ministerial Decision No. 97 of 2023 and its three-tier transfer-pricing documentation framework. The Local File gives the FTA a detailed view of intra-group transactions, allowing it to assess transfer-pricing risk. It combines financial data with analyses of controlled transactions and arrangements.

When is a Local File needed?

The original guide identifies four relevant categories:

• Small Business Relief: controlled transactions with a resident person benefiting from the relief; for example, purchasing AED 4 million of goods from a qualifying related small business.
• Different tax rates: transactions with a resident person subject to a different Corporate Tax rate; for example, licensing intellectual property to a related Qualifying Free Zone company.
• Cross-border arrangements: transactions with a non-resident; for example, paying management fees to a Hong Kong parent.
• Exempt persons: transactions with a person not subject to Corporate Tax; for example, providing technical services to a government entity.

All controlled transactions and arrangements must still be priced at arm’s length.

Exemptions

The guide identifies the following transactions as outside the Local File requirement:

• transactions with natural persons acting independently;
• transactions with juridical persons that are related parties solely because they are partners in an unincorporated partnership; and
• transactions with a permanent establishment of a non-resident person where both parties are subject to the same Corporate Tax rate.

The arm’s-length requirement nevertheless continues to apply.

What the file covers

The local entity

1. Corporate structure, organisation and management framework.
2. Principal officers, ultimate beneficial owners and reporting lines.
3. The business and its strategy.
4. Business restructurings and transfers of intangibles.
5. Key competitors.

Controlled transactions and arrangements

1. Descriptions of material transactions and arrangements.
2. Payment and receipt volumes by jurisdiction.
3. Associated enterprises.
4. Material inter-company agreements.
5. Tested parties and supporting commentary, including comparability adjustments.
6. Functional analysis.
7. Transfer-pricing methodology.
8. Arm’s-length pricing justification.

Financial information

1. Annual financial accounts.
2. Audited statements.
3. Allocation schedules linked to the statements.
4. Financial data for comparable businesses or transactions.
5. Sources used in the analysis.

Documents to include

The Local File should contain corporate and management charts, material inter-company agreements, strategy and competitor statements, a functions-assets-risks analysis for each arrangement, and identification of the tested parties.

It should also document the selected transfer-pricing method and its justification, the comparable-search method, comparability adjustments, selected comparables, any multi-year analysis, and the final arm’s-length conclusion.

The financial section should include local accounts, audited statements, allocation schedules, the data used in the analysis, source records and inter-company payment analysis.

Thresholds

For an MNE group with consolidated revenue above AED 3.15 billion, the Local File is required regardless of the UAE entity’s revenue, together with the Master File. A UAE entity with revenue of at least AED 200 million must also document all controlled transactions and prepare a Local File even if it is not part of an MNE.

Below those thresholds, a taxpayer must still be ready to produce supporting documentation within 30 days of an FTA request, apply arm’s-length pricing to every controlled arrangement and retain records showing how that pricing was established.

Building the Local File

1. Analyse the controlled arrangements: identify and categorise every intra-group transaction.
2. Prepare the functional analysis: record the functions, risks and assets relevant to each arrangement.
3. Conduct the benchmarking: identify comparable businesses, transactions or arrangements.
4. Finalise the documentation: combine the work into a coherent Local File.