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If you’re running a business or managing a multinational company with operations in the Emirates, you’ve probably heard about the new UAE transfer pricing rules. A question that keeps popping up is: Do I need to prepare a Local File?
Let’s break this down in this blog so you can understand exactly what’s required, when it applies to your business, and how to stay compliant without getting overwhelmed about the UAE transfer pricing regulations.
A Local File is a detailed transfer pricing document that contains information about your company’s transactions (UAE entities) with related parties. This document serves as evidence that your intercompany pricing methodologies comply with the arm’s length principle.
The Local File is part of a three-tier documentation structure recommended by the OECD (Organisation for Economic Co-operation and Development):
The core purpose of a Local File
The Local File demonstrates to the Federal Tax Authority that:
You must prepare a Local File if your company meets either of these conditions under the current UAE transfer pricing regulations:
The two main thresholds for local file requirements
If your UAE entity’s revenue in the relevant tax period reaches or exceeds AED 200 million, Local File preparation is mandatory, regardless of your group structure.
Example: Your Dubai trading company generates AED 250 million in annual revenue. You purchase inventory worth AED 80 million from your related entity in Singapore. Since your UAE revenue exceeds AED 200 million, you are required to prepare a Local File that documents this and all other related-party transactions.
If your UAE company forms part of a Multinational Enterprise (MNE) group whose total consolidated turnover reaches AED 3.15 billion or above (around €750 million), you are required to maintain a Local File, even when the UAE entity’s own revenue is under AED 200 million.
Example: A UAE manufacturing subsidiary earns AED 150 million in annual revenue but is part of a global group with consolidated revenues of AED 5 billion. In this case, Local File compliance still applies.Despite being below the individual entity threshold, the group threshold triggers your Local File obligation under UAE transfer pricing regulations.
| Documentation Requirement | Threshold Amount | Who Needs It |
|---|---|---|
| Local File | AED 200 million | Entities with individual entity revenue of AED 200M or more |
| Master File | AED 3.15 billion | MNE groups with consolidated group revenue of AED 3.15B or more |
| Transfer Pricing Disclosure Form | AED 40 million | Entities with total related party transactions ≥ AED 40M |
| Individual Transaction Disclosure | AED 4 million | Per transaction category (e.g., goods, services, financing) |
| Connected Person Disclosure | AED 500,000 | Payments of AED 500k or more |
Organisations that don’t meet the formal Local File thresholds aren’t entirely exempt from transfer pricing compliance. The FTA expects all entities engaged in related party transactions to maintain defensible documentation.
Minimum documentation standards
Even if you’re exempt from the Local File requirement, your organisation must:
| Your Situation | Local File Required? |
|---|---|
| UAE entity revenue ≥ AED 200M | YES |
| Part of the MNE group with revenue ≥ AED 3.15B | YES |
| UAE entity revenue < AED 200M AND not part of MNE group | NO (but maintain basic documentation) |
| Exempt entity or Small Business Relief | NO |
| Tax Group that collectively meets thresholds | YES (one consolidated Local File) |
If you do need to prepare a Local File, here’s what it should contain in line with UAE transfer pricing regulations and OECD guidance:
1. Business Overview: The FTA needs context to understand your entity’s role within the broader group structure and evaluate whether your profit allocation is appropriate.
2. Related Party Transactions: This section proves you’ve identified and documented every related party dealing, leaving no gaps for the FTA to question.
3. Functional Analysis: Your functional and risk profile directly determines your expected profit level. This analysis justifies why your entity earns its reported profit margin.
4. Financial Information: Financial data grounds your transfer pricing analysis in actual results, allowing benchmarking against comparable independent enterprises.
5. Transfer Pricing Methods: This is the core technical section of your Local File, showing that your pricing method is robust and produces arm’s length results according to UAE transfer pricing regulations.
6. Benchmarking Study and Arm’s Length Analysis: The benchmarking study provides objective market evidence that your profit margins align with independent enterprises performing similar functions.
7. Supporting Documentation:
The UAE follows internationally recognised transfer pricing methods. Here are the five main approaches:
1. Comparable Uncontrolled Price (CUP) Method
Compares the price in your related party transaction to prices in similar transactions between unrelated parties. This is considered the most direct method when comparable data is available.
Local File Requirements: Identify external comparable transactions, document comparability factors, and explain any adjustments needed.
2. Resale Price Method
Used when you buy from a related party and resell to an independent party. You work backwards from the resale price, deducting an appropriate margin.
Local File Requirements: Benchmark gross margins of comparable distributors, explain functional differences, and justify your entity’s margin.
3. Cost Plus Method
Adds suitable markup to the expenses borne by the provider of goods or services. Commonly used for manufacturing or service providers.
Local File Requirements: Document cost-based calculation, benchmark markups of comparable manufacturers/service providers, and explain value drivers.
4. Transactional Net Margin Method (TNMM)
Analyses the net profit margin in relation to a relevant base, such as expenses, revenue, or assets, produced from a controlled transaction.
Local File Requirements: Select appropriate profit level indicator (operating margin on sales, return on assets), identify comparable companies, and perform statistical analysis.
5. Profit Split Method
Divides the combined profits from controlled transactions between related parties based on their relative contributions.
Local File Requirements: Document value contribution analysis, establish profit allocation keys, and demonstrate economic rationale for split.
Which method should you use?
It depends on your specific transactions. Most companies find TNMM to be the most practical approach, but it is recommended to work with a transfer pricing expert to determine the best approach.
Timing is essential for Local File compliance. Knowing preparation and submission deadlines helps prevent penalties under UAE transfer pricing regulations.
Contemporaneous documentation requirement
Your Local File must be contemporaneous, meaning it should be prepared:
Practical Implication: Don’t wait until the FTA requests your Local File. The documentation must already exist by your tax return deadline.
Submission timeline to the FTA
The Local File is not automatically filed with your tax return. Instead:
Key Dates for 2025-2026 Filing Cycle
| Milestone | Date | Action Required |
|---|---|---|
| Financial Year End | December 31, 2025 | Ensure all transaction data is captured |
| Tax Return Filing | September 30, 2026 | Submit Corporate Tax return with Disclosure Form |
| CbC, Local File, Master File | 30 January 2027 | Submit all CbC reports (including Local File and Master File) to ATO |
| Local File Submission (on request) | Within 30 days of FTA request | Provide complete Local File documentation |
Best Practice: Complete your Local File before your external audit concludes, as transfer pricing adjustments must be reflected in your audited financial statements.
Here’s where people often get confused – the Disclosure Form and the Local File are two different things in the UAE transfer pricing framework:
| Transfer Pricing Disclosure Form | Local File |
|---|---|
| Must be submitted with your corporate tax return. | Only submitted when the FTA requests it. |
| Required if your total related party transactions exceed AED 40 million | Preparation of a Local File is necessary if the entity’s annual revenue is equal to or greater than AED 200 million, or if the group’s global consolidated revenue is equal to or greater than AED 3.15 billion for the relevant tax period. |
| Due within 9 months after your financial year ends | Must be submitted within 30 days of the FTA request |
| Directly filing with the FTA | More detailed than the Disclosure Form |
Can you do with one without the other?
Yes. You might need to file a Disclosure Form (if transactions exceed AED 40M) without requiring a Local File (if you’re below revenue thresholds), or vice versa.
Certain organisational structures face unique transfer pricing considerations within the UAE framework
UAE Tax Groups: Compiled Local File approach
If multiple UAE entities form a Tax Group for Corporate Tax purposes, you benefit from simplified documentation:
Qualifying Free Zone Persons (QFZPs): Separate Local Files
Free Zone entities qualifying for 0% tax rates face unique requirements:
UAE-Only Groups: No Master File required
If your group operates exclusively in the UAE (no foreign establishments):
Non-compliance with Local File requirements creates significant risks for your organisation under UAE transfer pricing regulations.
Direct penalties
Indirect consequences
When the FTA requests your Local File, follow these response protocols:
Upon receiving the FTA’s request for the Local File, acknowledge it in writing without delay. Assemble your transfer pricing team and locate the latest version of your Local File. Review the document to identify any missing details or gaps based on FTA requirements. If more time is likely needed, assess whether an extension request should be submitted.
Review the Local File to ensure it is complete, accurate, and up to date. Update any outdated information where allowed. Gather all supporting documents mentioned in the file and arrange them in a clear, well-structured order. Prepare a brief covering letter that outlines what is included and the purpose of the submission.
Have the Local File reviewed independently to confirm it meets quality and compliance standards. Verify all details against the supporting records and ensure the financial figures match the tax returns already filed. Check for accuracy and internal consistency throughout. Add short explanations for any unusual or complex transactions.
Format the documentation in line with FTA submission requirements. Prepare both electronic and physical copies if required. Create a submission letter with a complete list of the enclosed documents and obtain internal approvals. Submit the full package before the end of the 30-day deadline.
NOTE:
The 30-day deadline must not be missed. If additional time is required, ensure an extension request is sent and approved before the deadline expires.
The UAE is introducing Advance Pricing Agreements (APAs), which can provide certainty about your Local File positions.
How APAs relate to Local Files
An APA pre-approves your transfer pricing methodology before implementation:
APA Timeline
Should you consider an APA?
APAs make strategic sense for organisations with:
If you meet the thresholds, preparing a Local File isn’t optional; it’s required by law as part of the UAE transfer pricing regulations. But even if you’re below the thresholds, maintaining good transfer pricing documentation is smart business practice.
Think of it as insurance: it protects you from penalties, reduces tax disputes, and demonstrates that your business operates with integrity. The Local File requirement reflects the UAE’s commitment to OECD transfer pricing standards. Organisations that view this as a compliance checkbox miss the broader value: well-prepared Local Files provide clarity about your intercompany arrangements, support strategic decision-making, and protect your organisation during tax authority reviews.
Your finance team’s investment in quality Local File preparation today prevents costly disputes tomorrow. Begin your compliance journey now to ensure readiness when the Federal Tax Authority comes calling, and to stay ahead of evolving UAE transfer pricing regulations.
