Structuring Your Business for Tax Efficiency in the UAE

“Synopsis”

In 2025, with the UAE’s corporate tax regime in full effect—thanks to Federal Decree-Law No. 47 of 2022—the structure of your business isn’t just operational strategy, it’s a tax decision. From choosing the right jurisdiction to leveraging free zone benefits and transfer pricing rules, this guide walks you through how to smartly structure your UAE business while remaining legally compliant and tax-efficient.

1. Why Business Structure Matters

Your business structure impacts:

• Corporate tax exposure under Article 3 of Decree-Law No. 47
• Access to 0% corporate tax if classified as a Qualifying Free Zone Person (QFZP) via Cabinet Decision No. 55 of 2023
• Applicability of Economic Substance Regulations (ESR) under Cabinet Resolution No. 31 of 2019
• Eligibility for small business relief and group taxation

Proper structure ensures smoother compliance with the Federal Tax Authority (FTA) and protects your margins.

2. Mainland vs Free Zone: Legal Tax Outcomes

Mainland UAE businesses:

• Are taxed at 9% on income exceeding AED 375,000
• Must comply with Article 3 and 11 of the Corporate Tax Law
• Are ideal for local-facing businesses like retail, services, and hospitality

Free Zone UAE businesses:

• May enjoy 0% tax if they meet QFZP conditions under Article 18, supported by Ministerial Decision No. 139 of 2023
• Must avoid “excluded activities” and earn “qualifying income” to retain status
• Must show substance per Article 7 of Cabinet Decision No. 55

3. Entity Types and Their Tax Impact

Some popular structures:

• LLCs (mainland): Taxed normally under Article 11
• Free Zone LLCs: Eligible for 0% tax if they meet QFZP criteria
• SPVs: Great for asset holding and ring-fencing, especially in DIFC or ADGM
• Holding Companies: Used for real estate, IP, or equity in group firms
• Branches: May trigger tax under Article 14 if they constitute a Permanent Establishment

Choose based on your activity, income source, and compliance capability.

4. Qualifying for Free Zone Benefits

To qualify for the 0% tax regime, you must:

• Operate from a designated UAE free zone
• Conduct only qualifying activities (trading outside UAE, passive income, etc.)
• Ensure income meets criteria under Ministerial Decision No. 139 of 2023
• Maintain economic substance (staff, office, expenses) and comply with ESR reporting

Failing this, you’ll be taxed at 9% on full income—even if located in a free zone.

5. Group Structuring Strategies

Two powerful options:

• Tax Grouping (Article 40): Allows parent and subsidiaries (≥95% ownership) to file a consolidated tax return
• Qualifying Group (Article 26): Enables tax loss transfers between commonly owned entities (≥75%)

This improves internal cash flow and minimizes tax exposure across your business network.

6. Transfer Pricing Compliance in UAE

If your business has related party transactions, it must:

• Apply the arm’s length principle as defined in Article 34–38
• File a Transfer Pricing Disclosure Form
• Prepare Local and Master Files if revenue or group turnover exceeds thresholds
• Maintain contracts and benchmark studies to justify pricing models

Non-compliance may invite penalties and scrutiny under FTA audit guidelines.

7. Deducting Business Expenses Legally

Allowable deductions under Article 28–30 include:

• Rent, salaries, utilities, insurance
• Capital asset depreciation (aligned with accounting standards)
• Interest (capped under Article 30)
• Professional fees and advisory costs

Avoid claiming non-deductible expenses listed in Article 33, like penalties or fines.

8. Using Double Taxation Treaties

With over 140 DTAA agreements, UAE allows:

• Tax credits on foreign income
• Lower withholding tax on dividends, interest, royalties
• Greater control over global profit repatriation

Access granted under Article 47 of Decree-Law No. 47, applicable via Form 67 in your return.

9. Natural Person Exemption & Small Business Relief

Two key reliefs:

• Small Business Relief (Article 21): Revenue up to AED 3M = 0% tax
• Natural Persons: Income from personal services up to AED 1M is exempt under Ministerial Decision No. 73 of 2023

These help freelancers, consultants, and micro-entrepreneurs reduce tax burden early on.

10. Economic Substance Compliance

Required under Cabinet Resolution No. 31 of 2019 (amended via Resolution No. 57 of 2020), ESR applies to:

• Holding companies
• IP businesses
• Financing and leasing firms
• Shipping and HQ services

Entities must file ESR notification, submit substance report, and meet physical presence requirements.

Conclusion

Structuring your business for tax efficiency in the UAE in 2025 means combining smart strategy with regulatory insight. By aligning your setup with Decree-Law No. 47, qualifying for free zone benefits, and leveraging group and transfer pricing tools—you turn compliance into competitive advantage.

Think long term. Think legally. Think UAE.