Transfer pricing is now one of the most closely monitored areas of tax compliance in the UAE. As more businesses fall under the Corporate Tax regime, one document has become essential for proving that your Related Party Transactions pricing is fair, compliant, and acceptable to the Federal Tax Authority, and that is the Benchmarking Study.

Our guide on transfer pricing Benchmarking Study breaks down everything you need to know about how the study works, why it matters, how to build one properly, and what mistakes get companies into trouble. If you want to stay compliant in 2026 and protect your business during an FTA audit, this is the guide you want.

What Is a Benchmarking Study?

A Benchmarking Study is a structured analysis that compares the pricing of your controlled transactions with what independent parties would charge under similar conditions. The purpose is to prove that your dealings meet the arm’s length principle, which is the foundation of all transfer pricing UAE regulations.

Since the UAE follows the OECD transfer pricing framework, benchmarking is the most widely accepted way to demonstrate compliance.

Why UAE Companies Must Prepare a Benchmarking Study

Because it supports:

• Transfer pricing documentation (Local File + Master File)
• Accurate reporting of related party transactions
• Compliance with the economic substance UAE requirements
• Defence during FTA audits

Why Benchmarking Study Matters Under UAE Transfer Pricing Rules

When the UAE implemented the Corporate Tax Law, it introduced strict transfer pricing rules UAE businesses must follow. Any company engaged with group entities, shareholders, or related parties must ensure its pricing is fair.

A Benchmarking Study helps businesses meet:

1. Transparency Requirements

The FTA may ask for proof that your transactions reflect independent-market pricing. Benchmarking offers this proof.

2. Audit Defence

If your profit margins (due to transactions with related parties) fall outside acceptable ranges, the FTA can adjust your taxable income. Benchmarking prevents unnecessary adjustments.

3. Documentation Compliance

A Benchmarking Study is a supporting transfer pricing analysis. It may be used to justify arm’s length pricing where required.

Depending on your size and group structure, it may support:

• Local File, where benchmarking is typically included
• Master File, at a group level, if applicable
• Country-by-Country Reporting (CbCR), which is a separate obligation

Local File, Master File, and CbCR are independent requirements. They apply only when specific UAE thresholds are met.

UAE’s Alignment with OECD Transfer Pricing Guidelines

The UAE Corporate Tax Law mirrors the OECD transfer pricing standards. This brings consistency and clarity to how benchmarking should be conducted.

Key Elements the UAE Has Adopted

• Arm’s length principle
• Recognised transfer pricing methods
• Financial benchmarking requirements
• Functional analysis
• Comparable companies analysis
• Documentation rules

Because of this alignment, multinational groups familiar with OECD requirements will find UAE compliance straightforward, yet still requiring country-specific adjustments.

Understanding Comparable Companies Analysis in the UAE

A comparable companies analysis is the heart of every Benchmarking Study. It identifies companies that operate similarly to yours to determine what an independent profit level looks like.

Types of Comparables Used

1. UAE-based Comparables

Often limited because:

• Financial data is not fully public
• Free zone structures vary
• Many small businesses are not disclosed

2. GCC and Regional Comparables

Common for:

• Service providers
• Trading businesses
• Distribution models

3. Global Comparables

Used when:

• Industry data is scarce in the region
• The business operates cross-border

Why Comparables Matter

They help establish:

• Profit level indicators
• Market ranges
• Independent party transactions benchmarks

Recognised Methods for Benchmarking for Transfer Pricing in the UAE

Here are the OECD-approved methods accepted by the FTA:

1. TNMM Method UAE (Most Common)

TNMM measures net profit margins.
Works best for:

• Service providers
• Distributors
• Contract manufacturers

2. CUP Method

Compares direct prices between controlled and uncontrolled transactions.
Useful when identical pricing data exists.

3. Cost Plus Method

Used for:

• Back-office service entities
• Support service centres

4. Resale Price Method

Used when a product is purchased from a related party and resold to third parties.

5. Profit Split Method

Used for:

• Joint IP development
• Integrated supply chains

Pro Tip

Most UAE businesses rely on TNMM because UAE market price transparency is limited.

Step-by-Step: How a Benchmarking Study Is Done in the UAE

A proper study follows a structured approach:

Step 1: Identify Controlled Transactions

Before any benchmarking is performed, the first step is to identify controlled transactions. Under UAE Corporate Tax Law, a controlled transaction is any transaction between:

• Related Parties, or
• Connected Persons

These are parties that have ownership, control, or significant influence over one another. Controlled transactions are subject to transfer pricing rules and must comply with the arm’s length principle.

Common Examples of Controlled Transactions

These may include:

• Management and head office fees
• Royalty and intellectual property payments
• Trading of goods between group entities
• Intercompany loans and financing arrangements
• IT and shared service charges
• Marketing and brand support charges

Each transaction must be analysed separately. All controlled transactions must be priced as if they were agreed between independent parties under similar conditions.

Step 2: Conduct Functional Analysis

Examine:

• Functions performed
• Assets used
• Risks assumed

This step determines the correct transfer pricing method.

Step 3: Select the Profit Level Indicator

Common indicators:

• Operating margin
• Gross margin
• Berry ratio
• Mark-up on total cost

Step 4: Perform Comparable Companies Analysis

Screen for:

• Business activity match
• Geographic relevance
• Revenue range
• Asset structure

Step 5: Apply Arm’s Length Testing

Compare your company’s results with:

• Interquartile range
• Median
• Full range

If your margins fall outside the acceptable range, adjustments may be required.

Step 6: Prepare Transfer Pricing Documentation

This includes:

• Local File
• Master File
• Benchmarking Study
• Support for transfer pricing UAE compliance

Benchmarking for Transfer Pricing: UAE Requirements

As of 2025, benchmarking is required when your company meets specific thresholds.

1. Local File Requirement

You must maintain a Local File if:

• Revenue ≥ AED 200 million, or
• You are part of a multinational group

2. Master File Requirement

Required if:

• Group revenue ≥ AED 3.15 billion
• You fall under CBCR UAE

3. Benchmarking and Documentation Obligations for Small UAE Businesses

Small businesses may not always meet the revenue thresholds requiring a Local File or Master File. However, the arm’s length principle still applies to all taxable persons, regardless of size.

This means:

• If the FTA reviews your related-party transactions, you must still demonstrate that your pricing is reasonable.
• A simplified benchmarking analysis or support document may be sufficient, depending on the scale and complexity of transactions.

The Corporate Tax Law does not prescribe a separate “small business benchmarking requirement”; rather, the need arises from the obligation to price related-party dealings at arm’s length.

Challenges in Selecting Comparables in the UAE

1. Limited Financial Disclosure

Unlike Europe or the US, many UAE companies do not publish detailed financial statements.

2. Free Zone Variations

Free zones like DIFC, DMCC, ADGM have different regulatory reporting norms.

3. Market Differences

Foreign comparables must be adjusted for:

• Economic environment
• Functional differences
• Currency risk

Common Mistakes to Avoid in UAE Benchmarking Studies

1. Using Global Data Without Adjustments

The UAE market differs in:

• Risk
• Cost base
• Operating model

2. Missing Economic Substance Alignment

Even if benchmarking is correct, lacking substance can fail compliance.

3. Not Updating Benchmarking Yearly

The FTA expects:

• Annual updates
• Fresh comparable sets

4. Treating Benchmarking as a Standalone File

It must align with:

• OECD narrative
• Group documentation
• Transfer pricing documentation

How Benchmarking Study Supports UAE Audit Defence

During an FTA audit, authorities ask:

• Are your prices arm’s length?
• Are comparables relevant?
• Is documentation comprehensive?

A well-prepared Benchmarking Study gives:

• Defence against income adjustments
• Proof of fairness
• Support for tax positions taken

A weak study increases:

• Reassessment risk
• Penalties
• Time spent in audit negotiations

Conclusion

If your business engages with related parties, provides services within a group, or handles cross-border transactions, a well-prepared Benchmarking Study ensures your pricing stays within arm’s length, your tax position remains defensible, and your UAE compliance remains secure.

If you want a compliant, audit-ready Benchmarking Study prepared by experts, our team at Bestax can help. We specialise in transfer pricing UAE, Local File and Master File preparation, TNMM benchmarking, intercompany documentation, and complete FTA audit support.
Contact Bestax today to secure accurate benchmarking and stay ahead of 2026 transfer pricing requirements.

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Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.