How Proper Tax Consultancy Structuring Saves Millions
Free zone status is conditional and has to be evidenced, and registration and filing are obligations in their own right, separate from whether any tax is payable.
Tax advice in the UAE no longer means confirming that there is no tax. This sets out what a structural review of a group covers — which entities are registered, where each is actually managed, whether intercompany dealings are at arm's length, whether VAT treatment is evidenced — and works through the four beliefs that keep producing assessments.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
The UAE is no longer a jurisdiction where tax advice means confirming that there is no tax. Corporate tax was introduced by Federal Decree-Law No. 47 of 2022 and applies to financial years starting on or after 1 June 2023. VAT has applied at 5% under Federal Decree-Law No. 8 of 2017, as amended by Federal Decree-Law No. 18 of 2022. Registration, record-keeping, filing and transfer pricing documentation are now ordinary obligations of running a business here, and the savings available come from getting the structure and the paperwork right, not from finding an exemption.
What follows is what a tax review of a UAE group should actually cover, and the assumptions that most often turn out to be wrong. Our tax consultancy practice works through these questions with clients before a filing deadline, not after an assessment.
The rates, and what the thresholds mean
Taxable income up to AED 375,000 is taxed at 0%; above that, the rate is 9%. That is the general position for a UAE taxable person, whether it is registered on the mainland or in a free zone. Free zone registration does not remove a company from the regime. A Qualifying Free Zone Person may be taxed at 0% on qualifying income, but that status is conditional and has to be maintained and evidenced; it is not a feature of the address.
The financial free zones do not change this. The DIFC and the ADGM are common-law jurisdictions with their own courts and regulators, the DFSA and the FSRA, and their own company law, but they sit inside the UAE for federal tax purposes. An entity there registers for corporate tax and files like any other.
What a structural review looks at
The questions that decide a group's effective tax position are usually settled long before a return is prepared:
- Which entities are taxable persons, and are they all registered? Dormant and holding entities are frequently missed.
- Where is each entity actually managed? Residence and permanent establishment questions turn on facts, including where board decisions are taken and by whom.
- Do intercompany dealings reflect arm's length terms? Transfer pricing rules apply to related party transactions and to payments to connected persons, and they require documentation that supports the pricing rather than an assertion of it.
- Are management fees, royalties and interest supported by agreements and by evidence that the service was actually provided? An intercompany charge without a contract and without deliverables is the first thing questioned.
- Is the VAT treatment of each revenue stream documented? Zero-rating and exemption both require evidence, and the burden sits with the taxpayer.
The contractual layer matters as much as the numbers. Consultancy, service and licensing agreements decide where a receipt is sourced and which entity is entitled to it, and a group whose contracts do not match its transfer pricing file has a problem in both directions. Our contract drafting team prepares intercompany documentation to match the tax position rather than contradict it.
Assumptions that cause assessments
Four beliefs recur, and each of them has cost clients money.
"We are in a free zone, so we pay nothing." Only qualifying income of a Qualifying Free Zone Person is taxed at 0%, and only while the conditions are met. Income that falls outside that description is taxed in the ordinary way.
"We are below the threshold, so we do not need to register." Registration and filing obligations are separate from whether tax is payable. A person within the scope of the law registers and files, and reports a 0% result if that is the outcome.
"Economic substance still applies to us." Economic Substance Regulations were cancelled for financial years ending after 31 December 2022. Obligations remain only for the financial years FY2019 to FY2022, and groups that never filed for those years still carry that exposure. Continuing to prepare notifications for later years is wasted effort; leaving the earlier ones unfiled is not.
"The holding company solves the tax at source." A UAE company does not by itself reduce tax in the country where income arises. Treaty relief depends on that country's rules and on the UAE entity meeting the treaty's conditions, which generally means real management and real activity here.
Structures inherited from the old ownership rules
Many UAE groups still contain arrangements built around the former requirement that a mainland limited liability company be 51% owned by a UAE national. That requirement was removed by Federal Decree-Law No. 26 of 2020, with effect from 1 June 2021, and 100% foreign ownership is now permitted for most mainland activities, subject to the strategic-impact list and the activity schedule of the relevant emirate. A local service agent for the branch of a foreign company remains a separate and lawful arrangement, and is not the same thing.
Where side agreements, nominee holdings or profit-allocation letters remain in place for a reason that no longer exists, they now create disclosure and transfer pricing questions rather than solving anything. Reviewing them, and unwinding what is redundant, is usually the single most useful exercise in a legacy structure. Our corporate nominee and agency work addresses those arrangements directly, and our Dubai corporate lawyers handle the restructuring that follows.
Getting the process right
Practical discipline matters more than clever planning. Keep the books and supporting records for the period the law requires. Fix the financial year and apply it consistently across the group. Diarise registration and filing dates, and treat them as board-level items. Where a position is genuinely uncertain, document the analysis at the time it is taken; a contemporaneous file is what distinguishes a defensible position from a penalty. Where the point is material, a clarification from the Federal Tax Authority is available and is preferable to a guess.
Tax work in the UAE has become an ordinary compliance function with real consequences for getting it wrong. The groups that pay least are the ones whose structures are simple, whose contracts match their filings, and whose records were kept before anyone asked for them. Our tax compliance and legal advisory teams work together on exactly that.
Related Services: Explore our Tax Consultancy Uae Strategy services for practical legal support in this area.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.
Nour Attorneys Team
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