If your business deals with related companies across different countries, you’ve probably heard the term transfer pricing documentation.
It may sound technical, but in reality, it’s all about keeping records that prove your prices are set fairly when doing business with connected entities.
Getting this documentation right is not only a legal requirement but also a smart way to build trust with tax authorities and avoid penalties.
This guide will break it down for you in simple language, so you’ll know exactly what transfer pricing documentation is, why it matters, and how to prepare it.
📚 Also read: How to Register for Corporate Tax in UAE
What Is Transfer Pricing Documentation
Transfer pricing documentation is the official paperwork that explains how your company sets prices when trading goods, services, loans, or intellectual property with related parties. These related parties are often part of the same corporate group.
The goal is to prove that the pricing is set at “arm’s length,” which means it’s similar to what independent businesses would charge each other in the open market. This prevents companies from shifting profits unfairly to low-tax countries.
Why Transfer Pricing Documentation Is Important for Businesses
Companies that fail to prepare proper transfer pricing documentation can face heavy tax adjustments, financial penalties, and even damage to their reputation.
Authorities may assume you’re avoiding taxes if you don’t have the right records in place.
On the other hand, businesses that maintain clear and consistent documentation show transparency and gain credibility.
It also protects you during audits since you can prove that your pricing practices are fair and compliant.
Transfer Pricing Documentation Requirements in the UAE
The UAE introduced transfer pricing rules under its corporate tax framework to align with international standards.
The rules apply to Related Parties and also to Connected Persons such as owners, directors, or their relatives if they receive benefits that are not priced fairly.
A business must maintain a Master File and a Local File if it meets either of these conditions during the tax period:
- ✅ It is part of a multinational group with consolidated revenue of AED 3.15 billion or more
- ✅ Its revenue in the UAE is AED 200 million or more
These rules come from Ministerial Decision No. 97 of 2023 under Article 55 of the Corporate Tax Law.
The UAE corporate tax regime applies to financial years starting on or after 1 June 2023, which means these rules are now fully in effect.
📚 Also read: How UAE Corporate Tax Law Affects Your Business
Key Components of Transfer Pricing Documentation
✅ Master File
The master file contains information about the overall group structure. It explains how the group operates, its global transfer pricing policies, and important details about its worldwide business. This gives tax authorities a full picture of the company’s international setup.
✅ Local File
The local file dives deeper into the details of your company’s transactions in the UAE. It must include transactions with non-residents, exempt persons, resident companies that elected certain corporate tax provisions when relevant, and resident entities taxed at a different corporate tax rate.
The local file does not need to cover ordinary-course transactions with natural persons acting independently, nor certain partnership situations where parties deal at arm’s length.
✅ Country-by-Country Reporting (CbCR)
CbCR applies to multinational groups with consolidated revenue of at least AED 3.15 billion in the preceding financial year.
It provides a breakdown of revenues, profits, and taxes paid in each country where the group operates. This helps authorities see if profits are being shifted unfairly.
How to Prepare Transfer Pricing Documentation Step by Step
Transfer pricing documentation may feel overwhelming, but when broken down into steps, it becomes manageable.
- ✅ Identify related-party and connected-person transactions – List out all dealings with group entities and any benefits given to connected persons.
- ✅ Choose the correct transfer pricing method – Select one of the OECD-approved methods to analyze pricing.
- ✅ Perform a functional and financial analysis – Study the functions, risks, and assets involved in the transaction.
- ✅ Prepare the master file and local file – Organize your findings clearly.
- ✅ File the Transfer Pricing Disclosure Form – Submit it together with your corporate tax return if you meet the thresholds.
- ✅ Be ready to submit on request – Provide your Master File and Local File to the FTA within 30 days if asked.
- ✅ Keep records updated – Refresh documentation annually and maintain records for seven years after the tax period ends.
Having expert accountants and tax advisors guide you can make this process smoother and reduce the risk of mistakes.
📚 Also read: UAE Corporate Tax Registration Deadline
Transfer Pricing Documentation Methods
There are five main methods for analyzing transfer pricing. Each one helps prove that your pricing is consistent with market standards.
✅ Comparable Uncontrolled Price (CUP) Method
Compares the price charged in a controlled transaction with the price charged in an uncontrolled transaction between independent parties.
✅ Resale Price Method
Looks at the resale price of goods and works backward to determine if the initial transfer price was reasonable.
✅ Cost Plus Method
Starts with the cost of production and adds a fair profit margin to test if the transfer price is aligned with the market.
✅ Transactional Net Margin Method (TNMM)
Examines the net profit margin relative to costs, sales, or assets to see if it matches what independent businesses earn.
✅ Profit Split Method
Divides the combined profits from related-party transactions based on each party’s contributions.
Best Practices for Transfer Pricing Documentation
Businesses that want to avoid compliance risks should go beyond just meeting the minimum requirements. Here are some best practices:
- ✅ Update documentation every year to reflect changes in business operations.
- ✅ Make sure the master file, local file, and CbCR are consistent with each other.
- ✅ Follow OECD standards while also adapting to UAE-specific rules.
- ✅ Submit the Transfer Pricing Disclosure Form with your corporate tax return and maintain full supporting documents for at least seven years.
If your business is based in Dubai or anywhere in the UAE, working with professionals like OPAB ensures your documentation meets both local and global standards.
Common Mistakes to Avoid With Transfer Pricing Documentation
Even big companies can make mistakes that cause trouble during audits. Some of the most common ones include:
- ✅ Preparing documents only when requested, instead of keeping them ready in advance
- ✅ Using inconsistent financial data across the master file and local file
- ✅ Ignoring changes in UAE tax regulations
- ✅ Assuming small transactions or benefits to connected persons don’t need proper analysis
Avoiding these mistakes can save you from penalties and unnecessary stress.
📚 Also read: FTA VAT Registration in the UAE
Transfer Pricing Documentation Deadlines and Compliance in the UAE
The UAE corporate tax return and the Transfer Pricing Disclosure Form are due within nine months after the end of your tax period. For most businesses, this aligns with the corporate tax filing deadline.
The Master File and Local File are prepared annually but are submitted only if the Federal Tax Authority requests them.
Once requested, they must be provided within 30 days. Businesses are also required to keep these records for seven years.
Failure to comply may lead to administrative penalties, as set out in the UAE tax procedures. Staying ahead of deadlines and requirements is the safest way to avoid issues.
Getting Transfer Pricing Documentation Right
Transfer pricing documentation may seem like a burden, but it is actually a tool that helps your business stay compliant, avoid penalties, and build trust with both authorities and stakeholders. By preparing it correctly and keeping it updated, you safeguard your business for the long term.
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Frequently Asked Questions About Transfer Pricing Documentation
Is transfer pricing documentation required in the UAE?
Yes, businesses that meet certain thresholds under the UAE Corporate Tax Law are required to prepare transfer pricing documentation. The requirement depends on company size, revenues, and whether the company is part of a multinational group.
What is the threshold for transfer pricing documentation in the UAE?
A company must keep a Master File and Local File if it is part of an MNE group with consolidated revenue of at least AED 3.15 billion or if its UAE revenue is at least AED 200 million during the tax period. Smaller companies usually fall outside these requirements.
How do you prepare transfer pricing documentation?
To prepare documentation, you need to identify related-party and connected-person transactions, analyze them using one of the approved methods, and compile the findings into master and local files. You must also submit the Transfer Pricing Disclosure Form with your corporate tax return if you qualify.
What are the five methods of transfer pricing?
The five methods are Comparable Uncontrolled Price (CUP), Resale Price Method, Cost Plus Method, Transactional Net Margin Method (TNMM), and Profit Split Method. Each method uses a different approach to show that the pricing is fair and follows the arm’s length principle.
What happens if you don’t submit transfer pricing documentation?
Failing to prepare or submit transfer pricing documentation can lead to penalties, back taxes, and detailed audits. Authorities may assume your business is not compliant, which can harm both finances and reputation.
