A branch is the same legal person as its parent, operating in another jurisdiction. That one sentence explains nearly everything that follows — the liability, the accounts, the tax treatment, and the reason a branch is a worse shelter than people expect.
What a branch actually is
A branch has no separate legal personality. It does not have share capital, it does not have shareholders, and it cannot own assets in its own right. It is the parent, present in the UAE under a licence.
Consequences, in order of how often they surprise people:
- The parent is liable without limit for the branch’s obligations. There is no corporate veil between them, because there is only one company.
- Activities must mirror the parent’s. A branch cannot carry on business the parent is not licensed to do.
- Branch accounts are part of the parent’s accounts, while separate UAE financial statements are generally still required for licensing and tax.
- A local service agent is required for a mainland branch of a foreign company — a service relationship, not an ownership one. See local sponsor in Dubai.
Branch or subsidiary
| Branch | Subsidiary | |
|---|---|---|
| Legal personality | None — it is the parent | Separate company |
| Parent liability | Unlimited | Limited to its investment |
| Activities | Must match the parent’s | Chosen independently |
| Share capital | None | Yes |
| Local partners | Service agent for mainland | Foreign ownership generally permitted |
| Sale of the UAE business | Hard — nothing discrete to sell | Straightforward — sell the shares |
The exit question is the one to think hardest about. A branch is difficult to sell because there is no entity to transfer; you are selling assets and novating contracts. If there is any prospect of selling the UAE operation, or taking investment into it, a subsidiary is the structure that permits it. The fuller comparison is in branch versus subsidiary.
The tax position
A UAE branch of a foreign company is generally treated as a permanent establishment and is within the scope of UAE corporate tax on income attributable to it. Attribution is the technical work: the branch is taxed on what it earned, which requires a defensible allocation of revenue, costs and any head office recharge.
Head office charges are the area that attracts attention. A management fee allocated from the parent is a related party transaction and has to satisfy the arm’s length principle, with documentation to match — see transfer pricing.
And the one that catches free zone groups: a mainland branch of a free zone company does not shelter the parent’s Qualifying Free Zone Person status. Because the branch is not a separate entity, income attributable to it is non-qualifying income of the free zone company and counts towards the de minimis. See free zone to mainland.
What setting one up involves
The sequence differs between mainland and free zone, but the document pack is broadly consistent and the attestation requirement is the thing that sets the timeline.
- Board resolution of the parent approving the branch and appointing a manager
- Parent constitutional documents — certificate of incorporation, memorandum and articles
- Parent financial statements, frequently audited, for the last one or two years
- Power of attorney for the branch manager
- Attestation and legalisation of all of the above in the country of origin, then at UAE level
- Licence application, with a service agent agreement for a mainland branch
- Establishment card, bank account, tax registrations
Step 5 is where branch projects run late. Attestation of foreign corporate documents is measured in weeks and sometimes months, and it cannot be accelerated by paying more attention to the later steps. Start it first.
Note also that the parent’s accounts become visible. Where a group has not previously had its accounts examined by a UAE authority, that is sometimes a strategic consideration in itself.
Accounting and audit for a branch
Branches are routinely under-serviced here, because “it is not a separate company” is misread as “it does not need its own numbers”.
- Separate UAE books are needed, in enough detail to support the corporate tax return and the licence renewal.
- Audited branch financial statements are required by many authorities at renewal — see audit services.
- Intercompany balances with head office have to be reconciled and supportable, not a residual figure.
- Functional currency needs deciding deliberately where the parent reports in another currency.
- VAT registers in the name of the parent entity operating through the branch, which affects how invoices are issued.
When a branch is the right answer
It genuinely is, in four situations:
- The parent’s track record and balance sheet are the commercial asset — common in contracting and engineering, where tenders are won on the group’s history
- The UAE presence is a delivery arm rather than a business in its own right
- A regulator or client requires the contracting party to be the parent entity
- The operation is deliberately temporary — a project office for a defined contract
And when it is not: if you expect to sell the UAE business, take external investment into it, run activities the parent does not, or ring-fence UAE risk from the group — a subsidiary does all four and a branch does none of them.
The decision is cheap now and expensive later. Converting a branch to a subsidiary means a new entity, new registrations, novated contracts and a new banking relationship, which is the same work as setting up from scratch plus the unwinding.
Frequently asked questions
A branch is an extension of a foreign or UAE parent company operating in the UAE under its own licence. It has no separate legal personality, no share capital and no shareholders of its own. Legally it is the parent company, which is why the parent carries unlimited liability for everything the branch does.
A subsidiary if you may sell the UAE business, take investment into it, carry on activities the parent does not, or ring-fence UAE risk from the group. A branch if the parent track record is the commercial asset, the UAE presence is a delivery arm, a client or regulator requires the parent to contract, or the operation is deliberately temporary.
Separate UAE books are needed in enough detail to support the corporate tax return and the licence renewal, and many authorities require audited branch financial statements at renewal. The fact that the branch is not a separate legal entity does not remove the need for its own numbers.
Generally yes. A UAE branch of a foreign company is typically treated as a permanent establishment and is within the scope of UAE corporate tax on the income attributable to it. The technical work is the attribution: a defensible allocation of revenue, costs and any head office recharge, with the recharge subject to the arm length principle.
No, and this is a common and expensive misunderstanding. Because the branch is not a separate legal entity, income attributable to it is non-qualifying income of the free zone company and counts towards the de minimis threshold. A separate mainland company is the structure that actually ring-fences it.
The licensing steps are not the constraint; attestation is. Legalising the parent corporate documents in the country of origin and then at UAE level is measured in weeks and sometimes months. Start attestation before anything else, because no amount of attention to the later steps compensates for a late start on this one.