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September 15, 2025

minimizing tax operations for companies in uae and ksa

How to Minimize Tax Operations When You Have a Company in the UAE and KSA

Table of Contents

This article has been researched and written by the Business Development Team at Creation Business Consultants. AI has not been used in generating this article.

NAVIGATING TAX IN THE GCC

Two of the most vibrant and promising business hubs in the Middle East are the United Arab Emirates and Saudi Arabia (KSA). Companies operating in both jurisdictions must maintain strategic tax planning to stay compliant while optimizing their tax position, as the UAE now has a federal corporate tax of 9% and KSA will continue to have a corporate tax rate of 20%.

In the Middle East, corporate structuring and tax advice are our areas of expertise, and in this article, we examine applied strategies for businesses operating in the UAE and KSA to optimize tax operations.

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CONSIDERING THE TAX LANDSCAPE OF KSA AND THE UAE:

JURISDICTION	CORPORATE TAX RATE	VAT RATE	CONS
UAE	9% (above AED 375,000)	5%	Complex setup, higher compliance costs
KSA	20%	15%	Maintaining two distinct entities splits management attention, and will require governance, accounting, and reporting systems separate to the entities.

The UAE’s corporate tax rate is lower, and therefore it makes back-office and service functions more profitable. Conversely, the additional tax cost associated with KSA needs to be managed carefully to ensure that a company does not breach principles of tax avoidance.

THE PROS AND CONS OF DUAL JURISDICTION OPERATIONS IN THE GCC:

PROS	CONS
Exposure to two major GCC markets	Intricate compliance across two tax jurisdictions
Potential tax optimization via structuring	Risk of double taxation in both jurisdictions without correct planning
Maximize UAE’s free zones and tax credits	Transfer pricing analysis from ZATCA and FTA

HANDS-ON TIPS TO MINIMIZE TAX OPERATIONS

Benefit from the UAE-KSA Double Taxation Treaty

According to the treaty, UAE businesses are eligible to receive credits or exemptions from income taxes in the Kingdom. For instance, a 10% withholding tax is applied to royalties, which can be deducted against UAE tax obligations.

Make use of the Foreign Permanent Establishment Exemption

Companies that are tax residents in the UAE may choose to exclude income from a KSA subsidiary if it is subject to 20% or more KSA tax. This exemption reduces UAE taxable income, as KSA levies 20%.

Transfer Pricing (TP) Compliance

Related-party transactions between UAE and KSA businesses (entities) are subject to the Arm’s Length Principle (ALP). Artificially increasing costs in the UAE to reduce profit in KSA could raise several audit flags and may lead to assessments and penalties.

Optimize Withholding Tax (WHT) Credits

A 5% to 20% WHT rate is imposed by KSA on service payments made to UAE entities. UAE companies may be able to claim foreign tax credits under UAE tax law, with a potential cap of 9%. Any WHT paid in excess of this is not refundable; therefore, proper documentation is critical.

CASE STUDY: STRUCTURING FOR TAX EFFICIENCY

A UAE-based tech firm expanded into the Kingdom by setting up a subsidiary. KSA clients were billed through the KSA subsidiary rather than directly from the UAE entity, which allowed the following:

Profits generated in KSA are subject to a local tax of 20%.
UAE can implement the exemption for foreign permanent establishments.
Prevention of double taxation.
Adherence to TP and WHT rules.

Result: The firm minimized its effective tax burden and avoided regulatory penalties.

FREQUENTLY ASKED QUESTIONS BY OUR CLIENTS

Can I do business in KSA without setting up a local entity?

Yes, you can; however, this may result in permanent establishment risks and withholding taxes. It is generally more advantageous from a tax perspective to establish a local branch or subsidiary.

What is the risk of ignoring transfer pricing rules?

The risk is very high. ZATCA and the FTA are putting enhanced focus on intercompany transactions, and the biggest risk is that non-compliant entities could be audited, fined, and have their deductions disallowed.

Are all UAE free zones not subject to corporate tax?

Not all UAE free zones qualify for the 0% rate. Qualifying Free Zone Persons (QFZPs) are eligible under very strict regulations. If you are not classified properly, you may be liable for full taxation and associated penalties.

HOW WE CAN HELP

At Creation Business Consultants, our expertise covers:

Strategic corporate structuring in the UAE and KSA.
Tax advisory and compliance support.
Transfer pricing documentation and benchmarking.
VAT planning and registration.
Cross-border tax optimization and treaty analysis.

CONCLUSION AND NEXT STEPS

At Creation Business Consultants, we are here to assist using our expertise. While operating in both the UAE and KSA presents vast opportunities for growth, success can only be achieved through smart tax operations-operations that leverage treaty benefits and entity structuring to minimize taxable exposure. The right approach can save millions and alleviate your regulatory headaches.

Jonathan Morgan Business Development Consultant

Jonathan Morgan,
Business Consultant

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