How to account for a UAE branch of a foreign company

Legally, the branch and the parent are one entity. In accounting terms, the branch keeps a self-contained ledger with its own assets, liabilities, income and costs, and a head office account that replaces share capital. Money sent from the parent to fund the branch is credited to head office; profit sent back is debited.

At group level, the branch ledger is combined with the parent’s and the head office account cancels against the parent’s investment in the branch. Locally, the branch ledger is what UAE authorities and auditors look at.

Head offices routinely pay costs on behalf of branches: software licences, regional staff, insurance, travel. If those are not recharged and recorded, the UAE branch looks more profitable than it is. If they are recharged without a basis, the branch looks less profitable than it should, and the tax authority will ask why.

Agree a written allocation basis, such as headcount, revenue share or time spent, and record each recharge monthly with the calculation attached. Corporate tax in the UAE applies the arm’s length principle to transactions between related parties, and a branch and its head office are as related as it gets.

A German parent opens a branch in Abu Dhabi. In year one, the branch invoices UAE clients AED 4.6 million and pays local costs of AED 3.1 million. Head office pays EUR 180,000 of engineering software and staff time used on UAE projects.

With a recharge agreed at cost plus 5%, the branch records EUR 189,000 as a cost owed to head office, about AED 760,000 at an illustrative 4.02. Branch profit falls from AED 1.5 million to about AED 740,000. Without the recharge, the UAE books would show a profit the German parent also reports at home, which risks the same income being taxed twice and invites questions on both sides.

The UAE government portal states that foreign entities are subject to corporate tax if they conduct a trade or business in the UAE on an ongoing or regular basis. A licensed branch doing exactly that registers with the FTA, files within nine months of the tax period end, and keeps records for seven years. The tax is on the income attributable to the UAE operation, which is why recharges and allocations matter.

For VAT, the registration is generally for the legal person, so ask your tax agent how the branch should register and how supplies between the branch and head office are treated. Services bought from head office or other foreign suppliers are often subject to the reverse charge.

Prepare these alongside the year-end accounts.

• A reconciliation of the head office account to the parent’s records.
• The written recharge policy and monthly calculations.
• Contracts showing which entity, branch or parent, signed with each UAE client.
• Transfer pricing documentation proportionate to the size of the transactions.
• Exchange rate source used for foreign-currency recharges.

HelloBooks keeps a head office account in the chart, records recharges in EUR, GBP or USD with the AED value and FX differences tracked, and lets you attach the calculation to each journal. The AI agent can set up a recurring monthly recharge entry for review and answer “what is the head office balance at 30 June?” in plain English. On the Business plan, parent and branch can sit as separate entities in one login.

Your tax agent sets the allocation basis and reviews transfer pricing. For a branch-specific chart of accounts, book a call at /book-a-demo.