Optimizing UAE Tax Through Cross-Border Structures

A global logistics company headquartered in the Netherlands, with a Free Zone entity in the UAE, engaged us to evaluate its UAE Corporate Tax exposure. The UAE entity acted as a regional coordination center, invoicing its foreign affiliates for management services and charging mainland UAE customers for storage and freight forwarding activities. The company had never operated under any formal tax regime in the UAE and sought clarity on registration, effective tax rates, and documentation requirements under the new Corporate Tax Law.

During our initial review, we identified multiple layers of complexity. First, while the company operated from a Free Zone, it derived more than 50% of its income from mainland UAE customers — a critical factor disqualifying it from the 0% Free Zone corporate tax regime under Article 18 and the corresponding Ministerial Decision No. 139 of 2023. Moreover, the UAE entity had multiple cross-border related-party transactions with its group companies in Europe and Asia, triggering the applicability of transfer pricing rules under Article 34 of the Corporate Tax Law and OECD-aligned documentation obligations.

The client was under the impression that Free Zone entities were automatically exempt and that intercompany charges need not follow the arm’s length principle. We clarified that the 0% tax benefit applies only to Qualifying Free Zone Persons (QFZPs), subject to income thresholds, activity types, and compliance with substance requirements under Article 18(3). We also emphasized that related-party transactions must adhere to the arm’s length standard and be supported by a Master File and Local File, per Ministerial Decision No. 97 of 2023.

Additionally, we flagged a potential permanent establishment (PE) risk in KSA, as UAE personnel were regularly negotiating logistics contracts on behalf of the Saudi affiliate. This could trigger tax exposure in KSA and deny certain deductions in the UAE if not properly ring-fenced.

We advised a three-part action plan:

• Reclassify the entity as a standard taxable person and prepare for 9% corporate tax liability from FY 2024.

• Implement transfer pricing documentation, benchmarking UAE charges against comparable regional service providers.

• Restructure Saudi operations to avoid inadvertent PE creation, possibly by shifting client interfacing roles locally.

The client proceeded to file its tax registration under a standard regime, withdrew its QFZP classification, and initiated TP compliance activities. Our advice helped the client avoid misclassification, minimize audit risks, and preserve cross-border tax deductibility.