Navigating Complex Tax Thresholds Across Group Entities
Correcting Misinterpretations and Expanding Scope for Full Compliance
We were retained by a large UAE-based business group with diversified operations in healthcare, construction, real estate, and hospitality to lead their first full-cycle Corporate Tax compliance program under the new UAE regime. The engagement involved preparing corporate tax returns for over a dozen group companies, analyzing related party transactions, performing benchmarking analyses, preparing Local Files where applicable, and drafting intercompany agreements in accordance with the UAE Transfer Pricing framework.
While the initial scope covered a defined list of companies expected to meet reporting thresholds, the engagement quickly expanded as deeper reviews uncovered systemic gaps in how the group was interpreting the threshold calculations. A significant complexity arose when we discovered that management had been evaluating the AED 40 million disclosure threshold based on net transactions between related parties—offsetting payables against receivables—rather than using gross absolute values as required by law. As a result, multiple entities that were previously excluded from the scope of Related Party Disclosure became liable mid-engagement.
This shift necessitated a rapid expansion of the compliance scope, including fresh benchmarking studies, updated economic analyses, and the creation of new Local Files to reflect additional qualifying related party transactions. We had to mobilize additional resources to ensure uniform treatment across entities and compliance with the reporting obligations under Article 55 of the Corporate Tax Law and its accompanying guides. This also involved interviews with finance and legal representatives across business units to establish the functional profiles of each entity and determine the appropriate characterization of intercompany arrangements.
Our benchmarking team utilized regional comparables and local database sources to develop arm’s length pricing ranges for services such as intercompany management fees, HR allocations, procurement services, and intra-group financing. These ranges were applied consistently across entities, with adjustments made to the intercompany margins where pricing fell outside defensible benchmarks. In one case, we identified that intercompany markups on shared services exceeded typical third-party rates, prompting a renegotiation of the service-level agreements.
Parallel to transfer pricing documentation, we also advised the group on its eligibility for various Corporate Tax elections, including Group Relief and Realisation Basis. Several entities were strategically positioned to benefit from deferred taxation on unrealized gains and internal asset transfers, but due to the complexity of ownership layers and lack of centralized documentation, we recommended selective elections supported by legal and tax memoranda.
Given the group’s partial Free Zone presence, we also performed a Substance Gap Analysis to assess whether Free Zone entities would retain their 0% preferential rate or fall under the 9% general rate due to insufficient local presence. Recommendations included hiring UAE-based staff, increasing local asset footprint, and revising intra-group service flows to meet the “sufficient substance” and “qualifying income” criteria under Ministerial Decision No. 139 of 2023.
To maintain audit defensibility, we provided group-wide documentation including:
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Corporate tax returns filed via EmaraTax
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Benchmarking studies compliant with OECD standards
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Intercompany agreements and Local Files for all impacted entities
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Related Party Disclosure forms aligned with gross transaction values
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Internal policy templates to guide future compliance cycles
This engagement underscored the risks of misinterpreting statutory thresholds and disclosure mechanics, particularly in multi-entity environments. By correcting these early assumptions and ensuring consistency in election strategy, documentation, and reporting, we safeguarded the group from potential penalties and audit exposure. Our proactive approach enabled the client to achieve full alignment with UAE Corporate Tax regulations while building a replicable tax governance structure for the future.
