What it means
Companies in the same group may sell goods, lend money or provide services to one another, and transfer-pricing rules ask whether the terms reflect what independent parties would agree in comparable circumstances. A local file explains that analysis for the local taxpayer.
The UAE Federal Tax Authority's transfer-pricing guide defines a local file as detailed documentation of controlled transactions and information about the taxpayer's business, whereas the master file provides an overview of the multinational group's operations and policies. Check the threshold for the relevant tax period, because UAE Ministerial Decision No.
97 of 2023 requires both files when the taxable person's revenue reaches AED 200 million, or it is part of an MNE group with consolidated revenue of at least AED 3.15 billion in that period. Being below those thresholds does not make related-party pricing irrelevant, because the arm's-length principle and other record or disclosure duties can still apply, and a smaller company should not be told it can set any price simply because a formal local file is not required.
Identify the parties and transactions carefully. Related parties and connected persons are defined in the tax law, so map loans, services, goods, intellectual property and any arrangements that affect taxable income.
The ministerial decision has specific rules for transactions to include in the UAE local file, naming non-residents, exempt persons and some residents subject to different treatment while excluding certain other resident transactions, so apply the actual categories and exceptions rather than copying a global group template wholesale. Describe the local entity's business and what it does in the group, since functions, assets and risks help explain why it earns a particular return.
A distributor that owns inventory and bears credit risk differs from one that merely arranges orders for a principal. Record the transaction terms and amounts for the period, and make sure the actual conduct and invoices match the contracts: if a contract says a company provides management services, show what work was done and why the recipient benefited.
Choose an appropriate transfer-pricing method and explain why, because a comparable uncontrolled price may work for a similar external sale while another method may be better when reliable comparables are missing. Benchmarking needs context, as a margin taken from unrelated companies may not be comparable if their markets, products or risk profiles differ.
Financial data should tie to accounts and tax records, and if a segment covers only a portion of the business, explain allocation keys and reconcile totals. Update the file for the tax period rather than rolling the prior year's numbers forward, because a new product, change of functions or exceptional market condition may alter comparability.
Coordinate with the master file where required, so the group's global description does not contradict the local entity's account of who owns intellectual property or bears risk. The local file is evidence, not a certificate that the tax authority accepts every price, and for a business owner it should tell a coherent, checkable story that connects the local work, price method and accounting figures.
In practice
Real-world examples.
Example
A UAE distributor documents purchases from an overseas affiliate and explains its inventory and credit risks before selecting comparable margins. The file ties the purchase figures to the ledger. It records why the chosen method fits the distributor's functions.
Example
A taxable person below the formal local-file threshold still checks arm's-length pricing and other record duties for an intercompany loan. It keeps the loan agreement, the interest calculation and the reasoning for the rate. The records are ready if the authority asks.
Example
A company checks which resident transactions are excluded under the UAE ministerial decision instead of adding every internal invoice to its local file. The tax team keeps a note of the category applied to each arrangement. The file stays focused on the transactions the rules require.
Formula
Calculation
Illustrative screening: formal UAE master-file and local-file duty if entity revenue >= AED 200 million OR qualifying MNE group consolidated revenue >= AED 3.15 billion in the relevant period. This is a threshold test, not an arm's-length pricing formula.
Worked example (invented figures): a UAE subsidiary has revenue of AED 150 million, and its group has consolidated revenue of AED 2.9 billion. Entity test: AED 150 million is below AED 200 million. Group test: AED 2.9 billion is below AED 3.15 billion. Neither threshold is met, so the formal duty does not apply on this screening, although arm's-length pricing and other record duties still do. If the group's revenue rose to AED 3.2 billion, the group test would be met and both files would be required.Case study
Seen in the real world.
This entirely fictional example concerns Coral Trading, an invented UAE subsidiary. It bought goods and IT support from foreign affiliates and initially kept only a spreadsheet of invoices. Its tax team checked the documentation thresholds and mapped the arrangements covered by the local-file rules. The team reconciled purchases to accounts, documented functions and reviewed comparable pricing. It also corrected a mismatch between its service contract and the work actually delivered.
The example does not assert a particular transfer price or tax result. Coral then set a yearly calendar, in which the tax team updates the file after the accounts are closed and before the filing deadline. It keeps dated copies of the data and the decisions used, and it checks the group's master file for consistency. The company is invented, and the story is illustrative only.
Watch out
Common mistakes.
- Assuming a company below the formal local-file threshold is exempt from arm's-length pricing and other records.
- Copying a group-wide report without documenting the local entity's actual functions, transactions and figures.
- Including or excluding related-party transactions by intuition instead of applying the decision's categories and exceptions.
Questions
People also ask.
What is a local file?
It is entity-level documentation explaining controlled transactions and the basis for arm's-length pricing.
How is it different from a master file?
The master file covers the group's global operations; the local file examines the taxable person's dealings and pricing.
Who needs one in the UAE?
A taxable person meeting the period's revenue or qualifying multinational-group threshold must maintain one under UAE rules.
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