Cross-border Tax Structuring

A UK-based business sought to establish a presence in the UAE to support international operations and benefit from the region’s favourable tax environment. The UK parent company would remain active while a new UAE subsidiary was being formed. The move required careful consideration of tax residency, cross-border compliance, and profit repatriation between the two jurisdictions.

The Challenge

Before establishing the UAE entity, the client needed clarity on a number of cross-border tax matters:

• The impact of UK tax residency on ongoing tax obligations
• The most efficient UAE structure for ownership, control and reporting
• Transfer pricing compliance for intercompany transactions
• Application of the UK-UAE Double Taxation Agreement to avoid double taxation
• VAT registration and treatment for UAE-based operations
• Ensuring full alignment with the new UAE corporate tax framework

The objective was to create a structure that protected profits, maintained full legal compliance and enabled flexibility across jurisdictions.

The Solution

We delivered an integrated UK-UAE tax and structuring plan focused on residency, transfer pricing and long-term compliance.

1. Residency and Tax Positioning

• Reviewed UK residency position using the Statutory Residence Test to confirm non-resident status
• Provided a clear day-count framework to ensure UK tax exposure was limited to UK-sourced income
• Applied the UK-UAE Double Taxation Agreement to avoid double taxation on salaries, dividends and other income
• Outlined the personal tax benefits of UAE residency, including no income tax, capital gains tax or inheritance tax

2. UAE Entity Structuring

• Recommended incorporation in a UAE Free Zone to benefit from 100 per cent foreign ownership, simplified administration and reduced tax exposure
• Developed a clear ownership structure ensuring the UK parent retained full control
• Selected the Free Zone based on regulatory fit, and eligibility for corporate tax exemptions

3. Transfer Pricing and Intercompany Structuring

• Developed a formal transfer pricing policy to govern intercompany charges between the UAE and UK
• Introduced compliant pricing models for shared services, operational support, and intellectual property usage
• Drafted intercompany agreements that reflected commercial substance and followed OECD guidelines
• Ensured arm’s length pricing was defensible under both HMRC and UAE Federal Tax Authority requirements

4. Profit Repatriation and Withholding Tax

• Advised on how dividends and other profits could be repatriated from the UAE to the UK with minimal tax exposure
• Ensured that no withholding tax liabilities would arise under the chosen structure by relying on treaty protections
• Created a mechanism for structured payments, including management fees and service recharges

5. UK Parent Company Compliance

• Reviewed how UK corporate tax rules apply to foreign income including profits earned through the UAE entity
• Recommended the use of foreign tax credits to avoid double taxation
• Designed a profit allocation model that balanced tax efficiency and operational needs

6. UAE Corporate Tax and VAT

• Registered the UAE entity for corporate tax in line with the new 9 per cent regime
• Reviewed whether income qualified for Free Zone exemptions
• Registered the company for VAT where applicable and implemented proper invoicing and reporting systems

7. Ongoing Support and Risk Management

• Set up cross-border reporting frameworks and aligned accounting procedures between the UK and UAE
• Conducted a tax risk assessment covering transfer pricing, substance and intercompany flows
• Provided ongoing advisory to respond to future changes

‍Results and Benefits

1. Tax-efficient structure across both jurisdictions with full transparency and compliance
2. Transfer pricing policy and intercompany agreements that support commercial operations and protect against audit risk
3. Profits repatriated efficiently, with no withholding tax or double taxation exposure
4. Full ownership and control retained through a Free Zone setup aligned with international standards
5. Personal residency and corporate structure optimised together for long-term financial planning
6. A scalable and compliant foundation now in place to support future growth across borders

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Takeaway

Setting up a UAE entity from the UK requires more than just incorporation. Without a clear transfer pricing policy and intercompany structure, cross-border operations quickly become exposed to risk. With the right planning, businesses can retain control, stay compliant, and unlock the full benefits of operating between the UK and UAE.