Transfer Pricing Basics for UAE Groups (2025)

Master File & Local File: What UAE Groups Need Now

This practical Transfer Pricing UAE 2025 guide explains related-party thresholds, what belongs in your Master File and Local File, and the data to start collecting today for a smooth review. If you want done-for-you compliance, our Transfer Pricing & Corporate Tax Advisory is rated Top in UAE and the Best in Dubai for SMEs and family groups — truly Top-notch service in UAE.

1) Related-Party Thresholds & Triggers

Determine if your UAE entities meet documentation thresholds based on group size, transaction materiality, and related-party definitions. Map all controlled transactions: goods, services, royalties, cost sharing, financing, guarantees and recharges.

• Build a party map: shareholders, sister companies, free zone affiliates, offshore SPVs.
• Quantify each transaction category and period coverage.
• Flag high-risk items (intangibles, management fees, financing spreads).

2) Master File vs Local File — Documentation Structure

The Master File tells the group story; the Local File defends the UAE entity’s prices. Keep them connected with consistent numbers and narrative.

• Master File: group overview, supply chain, intangible ownership & strategy, financing, and group TP policy.
• Local File: UAE entity profile, detailed transaction descriptions, functional analysis, method selection, comparables and financial testing.
• Appendices: intercompany agreements, invoices, segmented P&L, allocation keys, working papers.

3) Functional & Risk Analysis (FAR)

FAR analysis documents who performs which functions, uses what assets, and bears which risks. It is the backbone for choosing the tested party and TP method.

• Capture headcount by function (sales, logistics, R&D, management).
• List assets used (IP, key contracts, equipment, platforms).
• Record risk controls (credit, market, inventory, foreign exchange).

4) Methods, Tested Party & Benchmarking

Choose an appropriate method (CUP, Resale, Cost Plus, TNMM, Profit Split). For many UAE distributors or service centers, TNMM with operating margin or cost-plus mark-up is common, supported by a benchmarking study.

• Define the tested party (usually the simpler entity).
• Screen comparable companies, set accept/reject criteria, compute interquartile range.
• Tie the final margin/mark-up to the Local File and ERP actuals.

5) Intercompany Agreements & Invoicing Hygiene

Paper the policy. Clear intercompany agreements aligned to TP reports reduce disputes and speed audits.

• Ensure scope, pricing formula, responsibilities and IP clauses match the FAR and benchmarking.
• Invoice regularly with proper descriptions; avoid year-end lump sums without support.
• Keep board minutes or approvals for significant policy changes.

6) 30-Day Transfer Pricing Data Readiness Sprint

A quick plan to get your TP documentation on track without slowing operations.

• Week 1: Map all related parties & transactions; gather agreements and prior studies.
• Week 2: Build segmented P&L; capture headcount by function; compile invoices & allocation keys.
• Week 3: Draft FAR; choose tested party & method; kick off benchmarking.
• Week 4: Finalize ranges; align invoicing; prepare Master/Local File outlines and approvals.

Common Transfer Pricing Mistakes (and Quick Fixes)

• No written agreements — Fix: issue signed contracts aligned to TP policy.
• Single blended margin for multiple functions — Fix: segment activities and test appropriately.
• Outdated benchmarking — Fix: refresh screens and financials regularly.
• GL/ERP doesn’t match TP schedules — Fix: add reconciliation workpapers and review controls.