Intercompany Transactions in UAE Group Companies

What are intercompany transactions?

Intercompany transactions are financial dealings between two or more entities that share common ownership or control — typically companies within the same corporate group. In the UAE, the most common group structure is a mainland LLC and a free zone company owned by the same individual or holding entity. Transactions between these entities — management fees, intercompany sales, cost allocations, loans, and payments on behalf — must be recorded by both parties at the same amount, reconciled monthly, priced at arm's length for transfer pricing purposes, and eliminated on consolidation if the group prepares consolidated financial statements. Under UAE Corporate Tax (Federal Decree-Law No. 47 of 2022), all intercompany transactions are related-party transactions subject to the arm's length principle, and must be disclosed on the transfer pricing disclosure form filed with each entity's Corporate Tax return. TruAccountants manages intercompany accounting for multi-entity groups on the Growth, Scale, and Fractional CFO tiers, ensuring balances agree, pricing is documented, and consolidation adjustments are correct.

Common intercompany transaction types

Transaction type	Example	Key accounting issue
Management fees	Mainland entity charges AED 10,000/month to free zone entity for HR and admin support	Must be supported by a service agreement; arm's length pricing required
Intercompany sales	Free zone trading company sells goods to mainland distribution entity	Pricing must be at arm's length; VAT treatment depends on whether goods cross designated zone boundaries
Cost allocations	Group head office allocates IT, rent, and insurance costs across subsidiaries	Allocation key must be reasonable (revenue, headcount, or usage-based); markup required for TP
Intercompany loans	Parent company lends AED 500,000 to subsidiary at 0% interest	Interest-free loans must be imputed at market rate for transfer pricing; interest expense deductibility subject to thin capitalisation rules
Payments on behalf	Entity A pays a vendor invoice for Entity B	Must be recorded as intercompany receivable/payable, not as an expense of the paying entity
Dividends	Subsidiary declares dividend to parent	Generally exempt from Corporate Tax if conditions met; must be properly declared by board resolution
Asset transfers	Equipment transferred from mainland entity to free zone entity	Must be at fair market value; potential VAT implications if crossing designated zone boundaries

The monthly intercompany reconciliation process

Both entities record the transaction in real time. Entity A records the intercompany receivable and Entity B records the intercompany payable — at the same amount, on the same date.
Use a shared intercompany log. A centralised spreadsheet or module listing every intercompany transaction with date, amount, description, and reference number — updated by both sides.
Reconcile balances monthly. At month-end, the intercompany receivable in Entity A must exactly equal the intercompany payable in Entity B. Any difference must be investigated and resolved.
Clear timing differences. If Entity A recorded a transaction that Entity B hasn't yet — record it on both sides or document the timing difference for month-end reconciliation.
Settle balances periodically. Intercompany balances should be settled (paid) at least quarterly. Indefinitely unpaid balances raise transfer pricing questions and auditor concerns.

The number one intercompany problem: Entity A books the transaction but Entity B doesn't — or books it at a different amount. By year-end, the mismatch is buried in hundreds of transactions and takes days to untangle. The fix is simple: reconcile monthly, not at year-end.

Transfer pricing for intercompany transactions

Every intercompany transaction in a UAE group must comply with the arm's length principle under the Corporate Tax Law. This means:

Intercompany services must be charged at the price an independent service provider would charge
Intercompany goods must be sold at the price an independent buyer would pay
Intercompany loans must carry an arm's length interest rate (even if the actual rate is 0%)
Cost allocations must include an appropriate markup (typically 5%–10% for routine services)
All pricing must be documented and supported by intercompany agreements

The QFZP trap. If a free zone entity claiming the 0% qualifying rate has transactions with a mainland related party that are not at arm's length, the FTA can: (1) adjust the transaction price for Corporate Tax purposes, (2) reclassify income as non-qualifying, and (3) potentially disqualify the entity from QFZP status for the entire tax period. Getting intercompany pricing right is not optional for free zone groups.

Consolidation eliminations

If the group prepares consolidated financial statements (required under IFRS if the parent controls subsidiaries), all intercompany transactions must be eliminated:

Intercompany balances: Receivable in Entity A and payable in Entity B — both eliminated to zero
Intercompany revenue and expenses: Management fee income in Entity A and management fee expense in Entity B — both eliminated
Intercompany profit on inventory: If Entity A sells goods to Entity B at a markup and Entity B still holds the goods at year-end, the unrealised profit must be eliminated from consolidated inventory
Intercompany dividends: Dividend income in the parent and dividend paid in the subsidiary — eliminated

What TruAccountants does here

Set up and maintain the intercompany transaction log across all group entities
Perform monthly intercompany reconciliation and resolve mismatches
Draft and review intercompany service agreements with arm's length pricing
Prepare transfer pricing documentation for all intercompany transactions
Calculate and post consolidation elimination entries
Prepare consolidated group financial statements under IFRS
File the transfer pricing disclosure form for each entity's Corporate Tax return

Managing a multi-entity group in the UAE?

Send us your group structure. We'll reconcile the intercompany balances, set up the agreements, and make sure your transfer pricing is documented — before the auditor asks.

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