It is currently difficult for the amputee to perceive environmental information such as tactile pressure on the fingertip of the present upper limb prostheses. Sensory feedback induced by cutaneous electrical stimulation can be used to transmit tactile information from hand prostheses to sensory nerve of intact upper arm, thus producing the corresponding perceptions in human brain. In order to have a deeper understanding on the distribution of stimulation current within the limb, and find a better placement of the stimulating and reference electrodes, we constructed a three-dimensional upper-limb model to systematically study the effect of electrode placement on current distribution based on finite element analysis. In these simulations, the reference electrode is positioned at four different locations around and on the axial direction of the arm. The results show that with the increase of distance between reference electrode and stimulating electrode, the current density increases in the skin layer of the upper limb. When the reference electrode is on the opposite side of stimulating electrode around the arm, the current is more concentrated in the skin layer, which is in line with recent findings in psychophysiological experiments. But better spatial selectivity could be achieved when the reference electrode is closer to the stimulating electrode around the arm, and it is more obvious in comparison with that on the axial direction. These findings will provide insights for the design of electrode array used for evoking cutaneous sensory afferents.