A finance manager messaged me last week, uneasy.
His UAE branch had been invoicing its parent company — the head office, incorporated outside the UAE — for support services, and adding 5% VAT on every charge. The head-office accountant reassured him: Just keep charging the VAT, we will recover it at our end.
Neither half of that was right.
Here is what was happening
A UAE branch and its foreign head office are not two businesses. They are one legal person — the branch is simply that overseas company, operating here. And in VAT, a supply needs two separate persons — Articles 5 and 6, Federal Decree-Law 8 of 2017. A person cannot supply to itself. So those internal charges were never a 5% supply at all. They were out of scope — and because the head office sits outside the UAE, that "VAT" was not output tax it could simply reclaim through a UAE return either.
The part most owners miss: Corporate Tax reads the very same branch differently. Under Federal Decree-Law 47 of 2022, a permanent establishment can be treated as a separate person, with profit attributed to it on an arm's-length basis. One entity. Two tax personalities.
What I corrected
- Stopped the 5% on genuine branch-to-HO charges and treated them as out of scope.
- Mapped which UAE input VAT the foreign head office could actually recover, and how.
- Documented the VAT position (one person) and the CT position (separate PE) separately, so neither contaminates the other.
The lesson: your UAE branch and your overseas head office are one person for VAT and a separate person for Corporate Tax. Put them on an invoice like strangers and you get both wrong at once.
Is your branch charging VAT to its own head office abroad?
Worth a sample check before your next return.
A version of this post was first shared on LinkedIn. Names and figures are anonymised. This is general information, not advice for your business.