What does arm’s length mean in transfer pricing?

Arm’s length means your company sets prices with related parties as if you’re dealing with someone who isn’t related to you.

Who needs to keep a master file and local file?

Companies in a group with worldwide revenue over AED 3.15 billion, or those with revenue over AED 200 million, must keep both files.

What goes into a transfer pricing policy?

The policy lists related party deals, methods for pricing, and what papers you’ll keep as proof.

How long should you keep transfer pricing records?

Every company should keep all records for at least five years after the tax year.

Who can help you with transfer pricing documentation in UAE?

Mubarak Al Ketbi (MAK) Auditing gives expert advice and helps you keep your files correct.

Transfer Pricing Documentation Under Corporate Tax

Transfer pricing stands as a major rule under the UAE’s corporate tax system. The law says every company must use fair prices, called “arm’s length prices,” when they deal with related parties. These parties can be other companies, parents, or subsidiaries inside the same group. The UAE made these rules in 2023, and they match what the OECD tells countries to do. So, the UAE wants every company to set prices like they’re working with outsiders.

Why Transfer Pricing Documentation Matters in UAE

A business must make sure every transaction with a related party uses a price that’s fair. The tax authority checks that prices are fair, and if not, they might give your company a penalty. Transfer pricing documentation helps companies show their work. It shows how the company set its prices, why it chose its method, and why it thinks those prices are fair.

Every company should keep a transfer pricing policy.
You must have proof for every related party deal.
The authority can ask you for these records anytime.
Not keeping good documents may bring fines or tax changes.

Main Parts of Transfer Pricing Documentation

The UAE tax authority says each business should keep:

A Transfer Pricing Policy: This shows your company’s rules for deals with related parties. It lists all deals, the ways you pick a price, and what papers you keep.
A Master File: This file gives an overview of the business group. It shows your company’s place in the group, the main related party deals, and your company’s general pricing methods.
A Local File: This file is about the UAE business itself. It lists detailed deals from the tax year, the exact prices, and the proof for those prices.

You must keep these documents for at least five years. The authority may ask for more files if your business has special cases.

Who Must Keep Master File and Local File?

The UAE says only some businesses need to keep both files. Your business must do this if:

Your business is part of a group with total worldwide revenue of at least AED 3.15 billion in the tax year.
Or, your business has revenue of at least AED 200 million for that tax year.

If you meet one of these, you need both the master file and the local file.

What Goes in the Local File?

Your local file must include all deals with:

Non-resident related parties
Exempt companies
Companies with a different tax rate
Small business companies that made a special election

But, you can skip some deals:

Deals with resident companies with the same tax rate
Deals with individuals if both sides are independent
Deals with unincorporated partnerships if both sides are independent

Parties are only independent if the deal is in the normal course of business and they do not only deal with each other. If there’s a special connection or control, the authority will not count them as independent.

How Transfer Pricing Audits Work

If the tax authority wants, it can review your transfer pricing. They may ask for all files and check every deal. If they think your prices were not fair, they can set new prices and change your taxes. That’s why companies must keep every record safe and ready.

Why Transfer Pricing Is Important in UAE Corporate Tax

It helps prevent profit shifting between countries.
It stops companies from moving profits to places with less tax.
It protects the tax base of the UAE.
It makes companies more transparent and fair.

Key Steps to Stay Compliant

Write your transfer pricing policy and update it often.
List every deal with a related party in your files.
Use accepted pricing methods as per the law.
Review your files every year.
Keep every document for at least five years.
Seek help from experts if you’re not sure.

How Mubarak Al Ketbi (MAK) Auditing Can Help

Mubarak Al Ketbi (MAK) Auditing stands as your partner in transfer pricing. Our team helps you set fair prices, write policies, and keep every needed document. We know all the rules in the UAE, and we keep you out of trouble with the tax authority. When you work with us, you won’t have to worry about crossing that bridge when you come to it, because we’ve already built the bridge for you!

For more information, visit our office:
Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
Or contact/WhatsApp us at +971 50 276 2132