Routine distributor
- Usual method
- TNMM
- Profit level indicator
- Operating margin (EBIT ÷ sales)
Transfer Pricing Benchmarking Study in the UAE – Orbis & TP Catalyst
A transfer pricing benchmarking study tests whether the prices, margins or fees charged between related parties fall within the range that independent companies achieve, known as the arm's length range. SGA World prepares benchmarking studies in-house on Moody's Orbis and TP Catalyst for UAE businesses, ready to support the Local File, the TP disclosure form and the corporate tax return.
- Ministry of Economy and Tourism approved auditor
- 500+ clients
- Dubai & Abu Dhabi
A transfer pricing benchmarking study is the evidence behind your related-party prices. Under UAE corporate tax every related-party and connected-person transaction must be at arm's length, and the benchmarking study is how you prove it when the FTA asks.
SGA World runs benchmarking in-house on Moody's Orbis and TP Catalyst, the same premium databases used by the Big Four. Our studies follow the FTA's geographic search order and the OECD comparability framework, and are written to Local File standard.
- Percentiles of the interquartile range
- 25th–75th
- Where the FTA adjusts results outside the range
- Median
- Weighted average of comparables' results
- 3 years
- Record retention period
- 7 years
At a glance
Transfer Pricing Benchmarking: Key Facts
- What it is: an analysis comparing your related-party prices or margins with independent companies.
- Why you need it: UAE corporate tax requires all related-party transactions to be at arm's length, with no size threshold.
- The test: your result should fall in the interquartile range (25th–75th percentile) of comparables.
- If you are outside the range: the FTA can adjust your profit to the median and tax the difference at 9%.
- Search order: UAE comparables first, then GCC and the Middle East, then global.
- Keep it current: update financial data yearly and run a full new search at least every three years.
Benchmarking basics
What Is a Transfer Pricing Benchmarking Study?
Benchmarking, also called a comparability or economic analysis, answers one question: would independent parties have agreed the same price or margin? It finds comparable independent companies or transactions, calculates the range of their results and tests your related-party result against that range.
If your result sits inside the interquartile range, the middle 50% of comparables, the pricing is treated as arm's length. If it falls outside, the Federal Tax Authority can adjust your taxable income, usually to the median.
- Tests each transaction, not the company's overall profit
- Uses independent companies with similar functions, assets and risks
- Required evidence for the Local File and FTA queries
- Protects the 0% rate for Qualifying Free Zone Persons
When you need one
When Is a Benchmarking Study Required in the UAE?
The arm's length rule has no minimum size, but these situations make a formal study essential.
| Situation | What it means for benchmarking |
|---|---|
| Local File required (revenue of AED 200 million or more, or group revenue of AED 3.15 billion or more) | Benchmarking is a core part of the Local File |
| Related-party transactions above AED 40 million (AED 4 million per category) | Reported on the disclosure form; each material category should be supported |
| Payments to a connected person above AED 500,000 | Market-value support needed; see KMP benchmarking |
| Qualifying Free Zone Person with related-party dealings | Arm's length pricing is a condition of the 0% rate |
| Management fees, loans, royalties or goods between group companies | Each transaction type needs its own analysis |
| FTA query or audit | The study is the first document the FTA asks for |
Our methodology
How Is a Benchmarking Study Prepared, Step by Step?
Our studies follow the full OECD comparability framework, with every decision documented.
Step
Functional analysis (FAR)
Map the functions, assets and risks of each party and choose the tested party, usually the least complex entity.
Step
Method selection
Choose the most appropriate of the five OECD methods for the transaction and the data available.
Step
Profit level indicator
For TNMM, select the PLI that fits the tested party, such as operating margin or net cost plus.
Step
Comparables search
Search Orbis and TP Catalyst by industry code, geography, size and independence, following the FTA's search order.
Step
Screening and adjustments
Reject non-comparable companies with documented reasons, then apply working-capital and accounting adjustments.
Step
Range and report
Calculate the interquartile range over a multi-year period, test your result and document the study to Local File standard.
Inside a comparables search
How Thousands of Companies Become a Defensible Comparable Set
Each screen is documented so the FTA can follow every decision.
- 12,000+Companies in the industry codes searched on Orbis and TP Catalyst
- 2,100Remain after geography and independence screens (no 25%+ shareholder in a group)
- 380Remain after financial screens: data for 3 years, positive equity, no persistent losses
- 60Remain after size and activity screens
- 14Accepted after manual review of each company's business description
Illustrative example of a distributor search. Actual numbers depend on the industry, region and transaction.
Profit level indicators
Which PLI Fits Your Business?
When TNMM is used, the tested party's profit is measured with a profit level indicator that matches its functions. Using the wrong PLI is one of the most common reasons studies fail.
Routine service provider
- Usual method
- TNMM or Cost Plus
- Profit level indicator
- Net cost plus (EBIT ÷ total costs)
Contract manufacturer
- Usual method
- TNMM or Cost Plus
- Profit level indicator
- Return on total costs or on assets
Limited-risk trader
- Usual method
- TNMM
- Profit level indicator
- Berry ratio (gross profit ÷ operating expenses)
Intra-group lender
- Usual method
- CUP
- Profit level indicator
- Credit-adjusted interest rate
IP owner
- Usual method
- CUP or TNMM
- Profit level indicator
- Royalty rate or return on assets
Search order
Where Should Comparables Come From? The FTA's Search Order
The FTA's Transfer Pricing Guide expects comparables to be searched in a set order, moving outward only when there is not enough reliable data:
- First: UAE independent companies
- Then: the GCC and wider Middle East
- Finally: pan-European or global comparables, with screening for any differences in markets
Standalone financial data for private UAE and GCC companies is limited, so many studies end up using wider regional or global sets. What matters is that each step of the search is documented, so the FTA can see why the final set was chosen. Skipping the UAE and GCC tiers is a common reason for FTA challenge.
Worked example
How to Read the Arm's Length Range
A Dubai distributor buys goods from its parent company. The benchmarking study finds independent distributors with these operating margins over three years:
- Lower quartile (25th percentile)
- 1.8%
- Median (50th percentile)
- 3.1%
- Upper quartile (75th percentile)
- 4.5%
- Distributor's actual margin 3.0%
- Inside the range: no adjustment
- Distributor's actual margin 0.9%
- Below the range: FTA can adjust to 3.1%, taxing the difference at 9%
An adjustment to the median is usually larger than an adjustment to the nearest edge of the range, which is why year-end reviews of margins matter.
What we benchmark
Which Transactions Can Be Benchmarked?
Intra-group services and management fees
Mark-ups on head-office, shared-service and management charges, including the benefit test.
Distribution and trading margins
Operating margins for distributors and trading companies buying from group suppliers.
Intercompany loans and interest
Arm's length interest rates for shareholder loans, cash pooling and group financing.
Royalties and IP licences
Royalty rates for trademarks, technology and know-how licensed within the group.
Manufacturing margins
Returns for contract and toll manufacturers serving related parties.
Guarantees and treasury fees
Fees for parent guarantees and treasury services, priced on a credit-adjusted basis.
Cost-sharing arrangements
Allocation keys and contributions for jointly funded development or services.
Owner and director remuneration
Market-value support for connected-person salaries. See KMP salary benchmarking.
Low value-adding services
Routine support services that can use the simplified cost plus 5% approach.
Simplified approach
What Is the Cost Plus 5% Rule for Low Value-Adding Services?
Following the OECD approach adopted in the FTA's guide, routine support services within a group can be charged at cost plus 5% without a full benchmarking study. Examples include:
- HR administration and payroll processing
- IT helpdesk and routine system support
- Basic accounting and bookkeeping
- General legal and administrative support
The simplified approach does not apply to services that are part of the group's core business, that involve unique intangibles, or to financial transactions. The costs, allocation keys and the benefit to the recipient must still be documented.
Financial transactions
How Are Intercompany Loans Benchmarked?
Loans between related companies are tested with the CUP method against the interest a borrower with the same credit standing would pay an independent lender.
- Credit rating: estimate a stand-alone rating for the borrower, adjusted for the support of its group
- Loan terms: amount, currency, tenor, security, ranking and repayment profile
- Market data: comparable loans or bonds, priced over a reference rate such as SOFR or EIBOR
- Result: an arm's length interest rate range for the loan
Interest-free shareholder loans are common in UAE family groups. Unless the loan is genuinely equity in nature, the FTA can impute interest, increasing the lender's taxable income.
Intra-group services
How Are Management Fees Benchmarked?
Management fees and head-office charges face two tests before the price is even considered:
- Benefit test: the UAE company must have received a service it would have paid an independent provider for
- No duplication or shareholder activity: costs of activities the parent carries out as owner, or that duplicate the UAE company's own functions, should not be charged
If both tests are passed, the charge is usually priced at cost plus a mark-up, benchmarked with the net cost plus PLI against independent service providers, or at cost plus 5% for low value-adding services.
Size of the set
How Many Comparables Does a Study Need?
There is no fixed minimum in UAE law. What matters is that each comparable is reliable, not the size of the set. In practice, a set of roughly 8 to 15 well-screened independent companies usually gives a meaningful interquartile range.
A set that is too small or contains companies with different functions weakens the study. Loss-making companies are normally excluded unless losses are a normal feature of the industry. See our guide on how many comparables a study needs.
Benchmarking desk
Get a Benchmarking Study the FTA Can Rely On
We run the search, document every rejection and give you a study that explains your arm's length position clearly, ready for your Local File and corporate tax return.
Your report includes
- Functional analysis and choice of tested party
- Method and PLI with reasons
- Database, search date and full search strategy
- Accept and reject reasons for each comparable
- Interquartile range, conclusion and appendices
What Makes a Company a Reliable Comparable?
A comparable is only reliable if it is genuinely similar on the five factors the OECD framework, adopted by the UAE, treats as decisive:
- Characteristics of the goods or services transferred
- Functions performed, assets used and risks assumed
- Contractual terms of the transaction
- Economic circumstances: market, geography, scale and timing
- Business strategies of the parties
Comparables are rarely identical, so defensible studies apply documented working-capital adjustments for differences in receivables, payables and inventory, and accounting adjustments for differences in cost classification. They are calculated and disclosed, not used to force a result into range.
Keeping it current
How Often Should a Benchmarking Study Be Updated?
Update comparables' financial data
Every year
Full new comparables search
At least every three years
New study
When the business is restructured or a new transaction starts
Review margins against the range
Before each year end
Documentation
How Does Benchmarking Fit Into the Local File and Master File?
The benchmarking study feeds the wider UAE transfer pricing file. We prepare all of them, so the figures agree.
Local File
The entity-level analysis of material controlled transactions, where the benchmarking study sits.
Master File
The group-level overview of the multinational's structure, intangibles and financing.
Transfer pricing disclosure form
Filed with the corporate tax return, summarising related-party and connected-person transactions.
What Mistakes Cause Benchmarking Studies to Fail?
- Testing the company's overall profit instead of each transaction
- Choosing a PLI that does not match the tested party's functions
- Skipping the UAE and GCC search tiers without documenting why
- A small or non-independent comparable set
- No screen for loss-making or dormant companies
- Using a single year instead of a multi-year average
- No working-capital or accounting adjustments
- Never refreshing the study after it is first prepared
Glossary
Benchmarking Terms Explained
- Arm's length principle
Related parties must price transactions as independent parties would in similar circumstances.
- Tested party
The entity whose results are tested against comparables, usually the less complex party to the transaction.
- Comparable
An independent company or transaction with similar functions, assets, risks and economic circumstances.
- Interquartile range
The middle 50% of comparables' results, between the 25th and 75th percentiles.
- Profit level indicator (PLI)
The ratio used to measure profit under TNMM, such as operating margin or net cost plus.
- Functional analysis (FAR)
Analysis of the functions performed, assets used and risks assumed by each party.
- TNMM
Transactional Net Margin Method: tests the net margin of one party against comparable companies.
- Contemporaneous documentation
Documentation prepared when prices are set or the return is filed, not after an FTA request.
Why SGA World
Why Choose SGA World for Benchmarking?
In-house Orbis and TP Catalyst
Our own team runs every search on Moody's databases, covering hundreds of millions of companies with standardised financials, so turnaround is faster and nothing is sub-contracted.
Studies that reconcile
Benchmarking, Local File, disclosure form and corporate tax return prepared together, telling one consistent story.
QFZP protection
Arm's length support that protects the 0% rate. See Qualifying Free Zone Person and transfer pricing services.
Further reading
Location: Dubai
Dubai Office
Our Dubai office in The Exchange Tower, Business Bay is the central hub for our audit, accounting and tax services across the UAE.
Dubai
Office 1923, The Exchange Tower, Business Bay, Dubai
Abu Dhabi
Khalidiya Towers M-B6, W10, Al Bateen, Al Khalidiyah, Abu Dhabi
Talk to an auditor
Tell us your company type, jurisdiction and deadline. We will confirm the scope, timeline and fee.
- WhatsApp us+971 50 627 3556
- Call us+971 4 570 1795
- Email us[email protected]
- Book an appointmentChoose a time that suits you
Prefer a form? Send us a detailed enquiry.
Insights
Related guides
Who prepared this page
Written and reviewed by SGA World's audit and tax team
This guide is prepared by chartered accountants at SGA World Auditing Accounting L.L.C S.P.C in Business Bay, Dubai, a Ministry of Economy and Tourism approved audit firm, and checked against Federal Tax Authority legislation and guidance. It is reviewed whenever the rules change.
- Last reviewed 2 October 2026
- Chartered accountants from India and the UK
- FTA representation through Saif Chartered Accountants
Have a question about your company?
Tell us your activity, jurisdiction and deadline. A chartered accountant will reply.
Ask an expertFrequently asked questions
Transfer Pricing Benchmarking – FAQs
Short answers to the questions UAE businesses ask us most. Still unsure?
Talk to our team01.What is a transfer pricing benchmarking study?
An economic analysis that compares your related-party prices or margins with those of independent companies, to show they fall within the arm's length range expected under UAE corporate tax.
02.What is the arm's length (interquartile) range?
The middle 50% of the comparable companies' results, between the 25th and 75th percentiles. Inside the range, pricing is generally accepted; outside it, the FTA can adjust your result to the median.
03.Is a benchmarking study mandatory in the UAE?
The arm's length principle applies to all related-party transactions. A benchmarking study is the standard evidence, and it is effectively required where a Local File is needed or where the FTA asks you to support your prices.
04.Which databases are used for UAE benchmarking?
Commercial databases such as Moody's Orbis and TP Catalyst are the most common. The FTA does not mandate a database but expects reliable data and a documented search strategy. SGA World runs Orbis and TP Catalyst in-house.
05.Does the FTA require UAE comparables?
The FTA's guide expects a search in order - UAE first, then the GCC and wider Middle East, then wider regional or global sets - moving outward only when local data is insufficient, with each step documented.
06.What is the difference between internal and external comparables?
Internal comparables are your own group's transactions with genuinely independent parties and are the strongest evidence when they exist. External comparables are independent companies from a database, used when no reliable internal comparable is available.
07.Which transfer pricing method is used most?
The Transactional Net Margin Method (TNMM) is the most common in the UAE because reliable net margin data for comparable companies is available. The method is chosen after the functional analysis for each transaction.
08.What is a profit level indicator (PLI)?
The financial ratio used to measure the tested party's profit under TNMM, such as operating margin for distributors or net cost plus for service providers.
09.What is the cost plus 5% rule?
For low value-adding intra-group services, such as HR administration or IT helpdesk support, a simplified mark-up of 5% on cost can be used without a full benchmarking study, provided the services are routine and properly documented.
10.How often should a benchmarking study be refreshed?
Comparables' financial data should be updated every year and a full new search carried out at least every three years, or sooner after a restructuring or a new type of transaction.
11.Do free zone companies need benchmarking?
Yes, where they have related-party transactions. For a Qualifying Free Zone Person, arm's length pricing is a condition of the 0% rate, so a benchmarking study protects the free zone tax position.
12.How long does a benchmarking study take?
It depends on the number and type of transactions. A study for one transaction type with complete information is usually much quicker than a multi-transaction Local File; we agree the timeline when we scope the work.
13.How many comparables does a benchmarking study need?
There is no legal minimum in the UAE. A set of roughly 8 to 15 well-screened independent comparables usually produces a reliable interquartile range; quality matters more than quantity.
14.How are interest rates on intercompany loans benchmarked?
With the CUP method: the borrower's stand-alone credit rating and the loan terms are used to find comparable market loans or bonds, priced over a reference rate such as SOFR or EIBOR, giving an arm's length interest rate range.
15.Can loss-making companies be used as comparables?
Usually not. Companies with persistent losses are normally screened out, unless losses are a normal feature of the industry for the period tested.
16.What is a functional analysis in transfer pricing?
An analysis of the functions each party performs, the assets it uses and the risks it assumes (FAR). It decides the tested party, the method and which companies are truly comparable.
