Mainland Vs Freezone

When this UK business expanded into the UAE, the vision was clear, tap into global demand, position the brand in a tax efficient jurisdiction and streamline operations from a central hub. What was not clear was the tax and legal structure underpinning that ambition.

Without consulting advisors, the company had set up a UAE mainland entity independently. The licence was active, operations had begun, and revenue was flowing but none of it was grounded in proper cross border planning.

What seemed like a straightforward setup soon revealed deeper risks.

What Went Wrong

The client was servicing high value customers across Europe but had no presence or sales in the UAE itself. Yet they were operating through a mainland entity with local licensing and compliance obligations that did not match their business model.

The problems mounted quickly:

• There was no intercompany agreement to justify management support or shared operations between the UK and UAE
• Transfer pricing had not been addressed so there was no clear explanation of how profits were allocated
• The UAE entity lacked commercial control from the UK parent
• VAT filings were incorrect as exported services were being treated as local
• Without applying the Double Taxation Agreement, the group risked paying tax twice on the same income

Our Approach

We did not recommend tearing down the setup. Instead, we realigned what was already there and rebuilt the structure to meet tax authority expectations in both the UK and the UAE.

Restructuring Without Disruption

We guided the client in moving from a mainland licence to a Free Zone more suited to international service providers. This removed the need for a local sponsor and reduced unnecessary compliance burdens.

We also restructured ownership under the UK parent to bring governance and tax reporting into one integrated model.

Building the Missing Framework

We introduced a full intercompany structure between the UK and UAE entities, supported by commercial agreements that outlined the scope, pricing and responsibilities of services provided.

Charges were introduced for real value created in the UK - executive oversight, operational support and administrative services. These were benchmarked using market data and documented under a new transfer pricing policy.

Protecting the Group from Double Taxation

With the structure in place, we reviewed all cross-border payments and applied the UK–UAE Double Taxation Treaty to ensure profits were not taxed twice. We also corrected VAT treatment on exported services and ensured the UAE filings aligned with FTA rules.

What Changed

The business is now in a stronger position:

• All internal transactions are backed by agreements and arm’s length pricing
• Profits are allocated and taxed appropriately with no risk of double taxation
• The UAE entity is leaner and better aligned with the international client base
• Transfer pricing compliance is in place and the group is audit ready
• Tax risk is now proactively managed with strategic oversight

Why It Matters

Had the original setup remained unchanged, the business could have faced VAT penalties, transfer pricing adjustments or diverted profits scrutiny. It did not — because we stepped in early.

Transfer pricing is not just a technical requirement. It is the foundation of cross border control. Without it, tax authorities can challenge your structure, question your profits and unravel your plans.