FTA Fines – The Impact of an Agent-Led UAE Setup

A UK-based business approached us after incorporating a UAE company through a third-party agent. The agent had promised a quick and inexpensive setup using a generic Free Zone package. The client was expanding internationally and assumed that securing a UAE licence was the right first step.

However, once operational, the client discovered that the setup lacked tax alignment, structural integrity and long-term suitability. They turned to us to assess whether the entity could be salvaged or whether it needed to be restructured entirely.

The Challenge

The client had made decisions based on price and speed. The agent offered no advisory input on the client’s business model, tax status or regulatory obligations. As a result, several problems emerged:

• The business activity did not match actual services being delivered
• The selected Free Zone had no commercial relevance to the client’s operations
• No intercompany structure or tax planning was in place
• The entity was not registered for UAE corporate tax or VAT despite being required to
• No exit plan had been created for the UK, nor a residency strategy for the UAE
• Fines were issued by the UAE Federal Tax Authority (FTA) for late registration

The Solution

We began with a full diagnostic review and created a corrective action plan to bring the structure into compliance while retaining its operational continuity.

1. Structural Realignment

• We restructured ownership to bring the UAE entity under the control of the UK parent
• A new Free Zone was selected to reflect the client’s actual business activity and support international growth
• Governance and shareholder documentation was amended to reflect the new structure

2. Intercompany and Transfer Pricing

• We created formal intercompany agreements covering management support and operational services
• A transfer pricing policy was drafted and aligned to both OECD principles and the commercial realities of the group
• All cross-border flows were reviewed and documented with commercial justifications

3. VAT and Corporate Tax Registration

• The entity had exceeded the VAT threshold, but had not registered due to agent oversight
• We completed backdated VAT registration and calculated the exposure
• For corporate tax, registration had also been missed triggering an AED 10,000 administrative fine from the FTA

4. Penalty Appeal and Resolution

• We submitted a formal appeal to the FTA explaining the circumstances of the delayed corporate tax registration
• Supporting documents were provided to demonstrate that the agent failed to advise on obligations, and that the client acted promptly once aware
• While the fine was initially upheld, we successfully reduced the liability through a voluntary disclosure supported by a compliance roadmap
• We ensured all future filings were submitted on time to prevent further exposure

5. Residency and Tax Planning

• A Statutory Residence Test assessment was completed for the UK to determine departure status
• UAE residency was aligned with visa timelines and day-counts were tracked to avoid triggering UK tax residency
• We worked with the client’s UK accountant to ensure cross-border reporting was consistent

6. Results and Benefits

1. The structure was re-engineered to reflect the actual business model and satisfy both UK and UAE tax law
2. Transfer pricing documentation and intercompany agreements now support all internal charges and services
3. VAT and corporate tax compliance is now in place with accurate filing schedules
4. The client avoided further penalties  through successful engagement with the FTA and strategic appeal
5. Residency and governance are now aligned to support long-term international operations
6. The business now benefits from a structure built around goals, not just the lowest setup cost

Takeaway

Agent-led setups often result in the cheapest structure, not the right one. In this case, it led to FTA penalties, reporting failures and a disconnect between ownership and control. Recovery was possible, but required professional intervention, appeals and a full restructuring. Compliance cannot be retrofitted. To operate successfully across borders, businesses must start with tax, not licensing.

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