Running a free zone and mainland group

Why groups split activities

Business owners often start with a mainland company for local customers and later add a free zone company for international contracts, a holding structure or intellectual property. Others do the opposite: they start in a free zone and add a mainland branch or company when onshore sales grow.

The common point is that each entity has its own licence, shareholders, bank account and tax profile. Treating them as one business in the records creates problems when a customer, a bank or the tax authority asks who supplied what.

Decide the role of each entity on paper first: who employs staff, who owns the contracts, who holds the brand and who invoices which customers.

Writing the role of each entity down also helps when you meet a bank or an investor. They want to see a coherent group where each company has a reason to exist, real management, and income that matches its licence.

Where the structure has grown by accident, take the time to draw the chart and note which entity actually does each job today, since the paper structure and the daily reality often drift apart.

Separate records for separate legal entities

Each company keeps its own ledgers, invoices, contracts, payroll and bank statements. Shared costs such as rent or software should be allocated by a written method and invoiced between entities, not paid from whichever account has money.

In 4invoices.net, use separate company spaces so that the numbering, the TRN and the archive belong to the right entity. In 4softcrm.net, tag contacts and deals by entity, so that a customer is not served by two companies by accident.

Review the group chart once a year and update the records whenever shareholders or directors change.

Shared costs are a classic source of mistakes. If the mainland company pays the office rent for both, record the recharge and invoice it, or the free zone company will carry costs it never booked and the mainland company will show a loss that does not belong to it.

Intercompany services and agreements

Typical intercompany flows are management services, shared staff, licence of a brand or software, and loans. Each needs a written agreement stating the service, the price, the payment terms and the start date.

Price should reflect what independent parties would charge. A flat percentage of revenue may work in some cases, a cost-plus margin in others, and documentation of the basis is the key point.

4mycontracts.net can hold the agreements with approval and e-signature history, and the invoices issued under them can be matched by reference. Make sure the signatory for each entity is authorised under its articles.

Keep a register of all intercompany agreements, with parties, start date, price and review date. A one-page list lets your accountant check quickly that every recurring charge has a contract behind it and that the invoices follow the agreed amounts.

VAT and corporate tax effects

Each entity decides its VAT registration on its own turnover, unless the group applies to register as a tax group, which treats the members as one taxable person under conditions. Intercompany invoices may then be outside the VAT return, so ask before choosing.

For corporate tax, a free zone company that is a qualifying free zone person can pay 0 % on qualifying income, but income from the mainland company is often non-qualifying. Mixing activities in a single company can put the whole entity at risk of losing the benefit, which is why groups often separate them.

These are advisory topics. The ecosystem produces invoices and keeps records, and your tax adviser decides the treatment.

Review the group structure with a tax adviser before large transactions, such as moving a contract from one company to another or financing a subsidiary, because the corporate tax and VAT effects depend on the details.

Staff, visas and employment contracts

Visas and labour contracts belong to the entity that sponsors the employee. When people work for several companies in the group, document which entity employs them and how their cost is shared, and avoid informal secondments.

4softhr.net records employees, leave and timesheets by entity, and 4mycontracts.net holds the signed contracts and amendments. Neither calculates gratuity or files salary data, but together they give a clean employee file per entity.

If a person moves between entities, treat it as a change of employer with a proper transfer of records and notice.

Where staff work for more than one entity, record the time they spend on each and recharge accordingly, using the timesheets in 4softhr.net as supporting evidence. The recharge then rests on records instead of an estimate made at year-end.

A yearly review of the group

Once a year, check that every licence is valid, every bank account is in the right name and every intercompany agreement is signed and current. Reconcile intercompany balances between entities, with both sides agreeing the figures.

Ask whether each entity still has the activity that justified it. A dormant entity with open filings costs money and attracts questions.

Keep a short memo of structure changes with dates and reasons. When you sell part of the group, raise finance or onboard an investor, this memo and the records behind it will save weeks.

Appoint one person who owns the group calendar of licence renewals, filings and intercompany reconciliations, so deadlines for several entities do not collide.

Prepare a one-page summary for new managers: the entities, their licences, the activities each performs, the banks, the signatories and the main intercompany flows. A group that explains itself clearly on a single page is easier to run and to finance.

وتذكر أن أي تغيير في الملكية أو الإدارة في إحدى الشركات قد يؤثر في وضع بقية المجموعة أمام البنوك والجهات الضريبية، فأبلغ مستشارك قبل التغيير لا بعده.

A free zone company can hold international contracts or intellectual property under a regime suited to those activities, while a mainland company can trade with UAE customers directly. The combination gives market access and flexibility. Each entity must have real activity, its own licence and its own records. Document the commercial reason for each.

Corporate tax rules require transactions between related parties to be priced as if between independent parties, and larger groups have documentation duties. Even small groups should write the price and basis in an agreement. Your tax adviser can confirm what applies to your size and structure. Ask your adviser what documents are required.

No. Each legal entity needs its own bank account, and using one entity's account for another's income causes confusion about whose revenue it is and which VAT and tax return should report it. Keep transactions in the right account, and settle intercompany balances by transfer with a clear reference to the agreement. وهذه القاعدة تسهل المطابقة والتدقيق.

It depends on whether the free zone company is VAT registered and on the nature of the supply. Some free zones are designated zones for goods, but services are generally treated as supplied in the mainland if the customer is there. Ask your adviser to confirm the treatment of each recurring service.

Information page

This page is informational. Confirm requirements with the competent UAE authority or your adviser; 4b2b tools cover general invoicing, communication and records only.