# Inter company bookkeeping in the UAE, explained for finance teams

> Inter company bookkeeping UAE rules explained: transfer pricing, VAT, corporate tax, reconciliations, and a clean monthly close.

Source: https://einvoicedirect.ae/bookkeeping-uae/inter-company-bookkeeping-uae  
Last updated: 2026-06-05  
Publisher: EInvoice Direct (Massive FZCO), UAE e-invoicing software.

## What is inter company bookkeeping in the UAE?

Inter company bookkeeping in the UAE is the process of recording, matching, and reporting transactions between two or more entities under common ownership. It covers sales, loans, recharges, and shared costs between a parent and its subsidiaries or sister companies. UAE rules under VAT, corporate tax, and transfer pricing require these entries to be arm's length, well documented, and eliminated on consolidation.

If your group has a mainland company, a Free Zone entity, and an offshore holding company, you almost certainly have inter company entries every month. Done well, inter company bookkeeping UAE keeps your VAT returns clean, supports your corporate tax position, and gives the group a single source of truth. Done badly, it creates double counting, mismatched balances, and penalty risk. This guide is part of our [Bookkeeping and Accounting Services UAE](https://einvoicedirect.ae/bookkeeping-uae) cluster.

## Why inter company entries matter under UAE tax law

The UAE introduced VAT (Value Added Tax) at 5% from January 1, 2018, and corporate tax under Federal Decree-Law 47 of 2022. Both regimes look closely at related party transactions.

### Corporate tax and transfer pricing

Corporate tax applies at 0% on taxable income up to AED 375,000 and 9% above that. A 15% Domestic Minimum Top-up Tax (DMTT) applies to large multinationals with global revenue of EUR 750 million or more from January 2025. Related party dealings must follow the arm's length principle. The Federal Tax Authority (FTA) expects you to keep transfer pricing documentation that supports the price charged between group entities.

### VAT on inter company supplies

Inter company sales of goods and services inside the UAE are generally taxable at 5% unless a VAT group is formed. Members of a VAT group share one Tax Registration Number (TRN) and supplies between them are disregarded for VAT. If you are not VAT grouped, every inter company invoice must follow normal VAT invoicing rules.

### E-invoicing under the Peppol model

The UAE e-invoicing regime uses a Peppol 5-corner DCTCE (Decentralized Continuous Transaction Control and Exchange) model with the PINT AE format. Phase 1 go-live is January 1, 2027 for businesses with revenue of AED 50 million or more, with the Accredited Service Provider (ASP) appointment deadline on October 30, 2026. Small and medium businesses follow on July 1, 2027 and government entities on October 1, 2027. Inter company invoices between separate legal entities will fall inside this regime.

## Common inter company transactions in UAE groups

Most UAE groups deal with a similar list of inter company items. Recording them with the right tax treatment from day one saves rework at year end.

- **Inter company sales:** one entity sells goods or services to another.
- **Management charges:** the holding company recharges salaries, software, or shared services.
- **Inter company loans:** short term or long term funding between group entities.
- **Expense recharges:** rent, utilities, or staff costs split across entities.
- **Asset transfers:** moving fixed assets between a mainland and Free Zone company.
- **Dividends and capital injections:** equity movements between parent and subsidiary.

### Tax treatment at a glance

| Transaction | VAT (non grouped) | Corporate tax | Transfer pricing |
| --- | --- | --- | --- |
| Sale of goods inside UAE | 5% standard | Taxable revenue, eliminated on consolidation | Arm's length price required |
| Management charge | 5% standard | Deductible if at arm's length and substantiated | Benchmark study recommended |
| Inter company loan | Out of scope (interest is exempt financial service) | Interest taxable in lender, deductible in borrower subject to limits | Arm's length interest rate required |
| Expense recharge | 5% if direct cost recharge with mark up | Match cost to benefit received | Cost allocation key needed |
| Dividend | Out of scope | Generally exempt under participation rules | No transfer pricing impact |

## The inter company bookkeeping workflow

A clean inter company process has four steps: agree, post, reconcile, and eliminate. Treat each step as a control, not a clerical task.

### Step 1: Agree the policy

Before posting anything, the group should sign an inter company agreement. It sets the scope of services, the pricing method, the currency, payment terms, and the review date. The FTA will ask for this document during an audit. Without it, your transfer pricing position is hard to defend.

### Step 2: Post mirror entries the same day

Every inter company invoice creates two entries. The selling entity records a receivable, the buying entity records a payable. Post both in the same accounting period and tag them to a dedicated inter company ledger. Use the same reference number on both sides. This single discipline removes 80% of month end pain.

### Step 3: Reconcile monthly

Run an inter company reconciliation every month. Match balances by counterparty and resolve differences within the same close. Common causes of mismatch are timing, foreign exchange, and one sided journal entries. Hold a monthly call between entity controllers to clear the list.

### Step 4: Eliminate on consolidation

When you produce group accounts, inter company sales, payables, receivables, and profits in stock must be eliminated. Failing to eliminate inflates revenue and assets. Auditors test these eliminations carefully.

## A worked example: mainland and Free Zone group

Assume a group has two UAE entities. Entity A is a mainland trading company. Entity B is a Free Zone services company that provides IT support to A.

- Entity B issues a monthly management invoice of AED 50,000 plus 5% VAT.
- Entity B records: Debit Inter company receivable A, AED 52,500. Credit Management fee income, AED 50,000. Credit VAT output, AED 2,500.
- Entity A records the mirror: Debit Management fee expense, AED 50,000. Debit VAT input, AED 2,500. Credit Inter company payable B, AED 52,500.
- At consolidation, the AED 50,000 income and expense net to zero. The AED 52,500 receivable and payable net to zero.
- For corporate tax, Entity B benchmarks the fee against external IT providers to defend the arm's length price. If Entity B is a Qualifying Free Zone Person (QFZP), the income may sit at 0% but only if the transfer pricing test is met.

## Documents the FTA expects you to keep

Records must be kept for at least 7 years. For inter company transactions, that includes:

- Signed inter company services or loan agreement.
- Tax invoices that meet UAE VAT rules, including the supplier and customer TRN.
- Transfer pricing local file and master file where thresholds apply.
- Benchmarking study or cost allocation working.
- Monthly reconciliation pack with sign off by both entity controllers.
- Board minutes approving material inter company arrangements.

## Penalties for getting it wrong

Cabinet Decision 106 of 2025 sets e-invoicing penalties from AED 2,500 to AED 50,000 per violation. VAT and corporate tax carry their own penalty schedules under Federal Decree-Law 17 of 2024 on tax procedures. Inter company errors usually trigger several at once: incorrect VAT return, missing invoice fields, and unsupported deductions for corporate tax.

### Typical risk areas

| Risk | What goes wrong | Fix |
| --- | --- | --- |
| One sided entries | Receivable booked, payable not booked | Same day mirror posting rule |
| Wrong VAT treatment | VAT charged inside a VAT group | Confirm VAT group status quarterly |
| Unsupported management fees | No agreement or benchmark | Sign a service agreement and document the method |
| Free Zone income at 0% | QFZP status lost due to non arm's length pricing | Annual transfer pricing review |
| Missing TRN on invoice | Input VAT denied on the buyer side | Invoice template with mandatory fields |

## How inter company bookkeeping links to other UAE setups

The right approach depends on the entity type and sector. If your group includes a Free Zone holding, read our guide on [Bookkeeping for Free Zone Companies](https://einvoicedirect.ae/bookkeeping-uae/bookkeeping-for-free-zone-companies). For owner managed groups under the AED 3 million Small Business Relief threshold through 2026, our guide to [Bookkeeping for Small Business UAE](https://einvoicedirect.ae/bookkeeping-uae/bookkeeping-for-small-business-uae) is the right starting point. Sector specific groups should also review [Bookkeeping for Real Estate UAE](https://einvoicedirect.ae/bookkeeping-uae/bookkeeping-for-real-estate-uae) and [Bookkeeping for Construction UAE](https://einvoicedirect.ae/bookkeeping-uae/bookkeeping-for-construction-uae), where joint ventures and cost sharing are common.

## Software and accounting systems

Most UAE groups use a single accounting platform across all entities, or several systems linked through a consolidation tool. Common platforms include Zoho Books, QuickBooks, Xero, Tally, Sage, SAP, Oracle NetSuite, Microsoft Dynamics 365, Microsoft Business Central, and Odoo. Whichever you use, the key features for inter company work are:

- Multi entity chart of accounts with a shared inter company control account.
- Automatic mirror posting between entities.
- Multi currency support with daily FX (foreign exchange) rates.
- Inter company elimination reports for group accounts.
- Audit trail showing the user, time, and source document for each entry.

## Monthly close checklist for inter company balances

- Lock the prior period in each entity.
- Export inter company sub ledger by counterparty.
- Compare receivables in entity A to payables in entity B.
- Investigate differences over a set threshold, for example AED 1,000.
- Post adjusting journals in the same period, both sides.
- Review FX revaluation on inter company balances.
- Confirm VAT treatment matches the inter company agreement.
- Sign off the reconciliation pack and store with the close file.

## Authoritative sources

Always cross check rules against the official anchors. The [UAE Ministry of Finance](https://mof.gov.ae) publishes corporate tax and e-invoicing policy. The [Federal Tax Authority](https://tax.gov.ae) issues VAT and corporate tax guides. The [MoF e-invoicing portal](https://einvoicing.mof.gov.ae) tracks the ASP list and timeline.

## When to outsource inter company bookkeeping

Outsource when the group has more than two entities, multi currency activity, or cross border recharges. A specialist team will set the chart of accounts, write the inter company policy, run the monthly close, and prepare the consolidation. Internal teams should keep ownership of approvals and reviews. The combination of in house judgment and outsourced execution scales well as the group grows.

If your group also runs online sales, see [Bookkeeping for E Commerce UAE](https://einvoicedirect.ae/bookkeeping-uae/bookkeeping-for-e-commerce-uae), or for hospitality groups, [Bookkeeping for Restaurants UAE](https://einvoicedirect.ae/bookkeeping-uae/bookkeeping-for-restaurants-uae). The full hub sits at [Bookkeeping and Accounting Services UAE](https://einvoicedirect.ae/bookkeeping-uae).

## Ready to clean up your inter company books?

EInvoice Direct is UAE e-invoicing software from Massive FZCO, with an accredited service provider included at no extra charge, ready for the Peppol PINT AE rollout. Our tax firm partners use it to keep group VAT, corporate tax, and inter company entries aligned across every entity. To [get UAE e-invoicing pricing](https://einvoicedirect.ae/for-tax-firms#contact), talk to our team about your group structure.

## Frequently asked questions

### Do I need to charge VAT on inter company invoices in the UAE?

Yes, unless the entities are in the same VAT group. Inter company supplies of goods and services between separate UAE legal entities are taxable at the standard 5% rate. If you form a VAT group under one Tax Registration Number, supplies between members are disregarded for VAT. Always confirm group status with the Federal Tax Authority before treating invoices as outside VAT.

### How does transfer pricing apply to UAE inter company transactions?

Federal Decree-Law 47 of 2022 requires related party transactions to follow the arm's length principle. You must price inter company sales, loans, and recharges as if they were between unrelated parties. The FTA expects supporting documentation, including a written agreement, a benchmarking study, and a clear cost allocation method. Larger groups also prepare a local file and master file.

### How do I reconcile inter company balances every month?

Export each entity's inter company sub ledger by counterparty, then compare receivables in one entity to payables in the other. Investigate differences above a set threshold, post mirror adjusting journals in the same period, and revalue foreign currency balances at month end rates. Hold a short monthly call between entity controllers to sign off the reconciliation pack.

### Are inter company loans subject to VAT or corporate tax in the UAE?

Interest on inter company loans is generally an exempt financial service for VAT, so no 5% VAT applies. For corporate tax, the lender records taxable interest income and the borrower claims a deduction, subject to general interest deduction limits. The interest rate must be arm's length, supported by a written loan agreement and a benchmarking analysis.

### Will UAE e-invoicing apply to inter company invoices?

Yes. Inter company invoices between separate UAE legal entities are commercial invoices and fall inside the e-invoicing regime. The model uses Peppol 5-corner DCTCE with the PINT AE format. Phase 1 go-live is January 1, 2027 for businesses with revenue of AED 50 million or more. Smaller businesses follow on July 1, 2027 and government entities on October 1, 2027.

### How long must I keep inter company records?

UAE tax law requires you to keep accounting records and supporting documents for at least 7 years. For inter company items, that includes signed agreements, tax invoices, reconciliations, transfer pricing files, and board approvals. Store everything in a single audit ready folder per entity, organized by year, so you can respond to an FTA query within the deadlines.

### Can a Free Zone company keep 0% corporate tax on inter company income?

Only if it qualifies as a Qualifying Free Zone Person and the inter company pricing meets the arm's length test. Income from related parties is reviewed against transfer pricing rules. If the price is too high or too low, the Free Zone entity can lose 0% status on that income. An annual transfer pricing review protects the position.


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This content is informational and is not tax, legal, or financial advice.
For UAE e-invoicing pricing, see https://einvoicedirect.ae/for-businesses#contact