Introduction:

In the UAE, businesses often ask:
“Should we set up a branch or a subsidiary — and how does each affect our corporate tax liability?”

With the Corporate Tax Law now fully enforced since June 2023, the structure you choose directly impacts your registration obligations, reporting rules, and tax exposure.

This blog provides a clear breakdown of the tax treatment differences between branches and subsidiaries in 2025, helping you make the right strategic decision.

What’s the Difference Between a Branch and a Subsidiary?

Structure	Definition	Legal Status
Branch	An extension of a parent company (UAE or foreign)	Not a separate legal entity
Subsidiary	A company legally incorporated in the UAE and owned by another entity	Separate legal entity

Corporate Tax Registration:

Entity Type	Required to Register?	FTA Notes
UAE subsidiary	✅ Yes	Registered as an independent taxpayer
Branch of foreign company	✅ Yes	If it earns UAE-sourced income
Branch of UAE company	❌ No (if fully consolidated)	Covered under parent’s return

All taxable persons must register via the FTA portal, even if no tax is payable initially.

Who Pays Tax?

Structure	Taxpayer	Filing
UAE subsidiary	Subsidiary itself	Independent tax return
Branch of foreign company	Foreign parent company	Branch files UAE return
Branch of UAE company	UAE parent company	Income consolidated

Note: The tax rate is the same — 0% on the first AED 375,000, then 9% above that threshold.
However, how the income is attributed and reported differs.

Foreign Branches of UAE Companies:

If a UAE-resident company owns a branch outside the UAE, it may elect to exempt foreign branch income, provided that:

• The foreign branch is subject to sufficient tax in its jurisdiction
• The company is not using the branch to avoid UAE tax

This exemption must be claimed on the tax return and supported by financial documentation.

Refer to Article 24 of UAE Corporate Tax Law

Repatriation of Profits:

One of the advantages of the UAE’s tax regime is no withholding tax on dividends or profit transfers.

Structure	Can Transfer Profits?	UAE Withholding Tax?
UAE subsidiary	✅ Yes	❌ No
Branch of foreign company	✅ Yes	❌ No

Permanent Establishment (PE) Consideration:

A foreign company’s branch may create a Permanent Establishment (PE) in the UAE, triggering tax liability if it:

• Has a fixed place of business in the UAE
• Carries on business through a dependent agent

FTA’s latest guidance (2024) confirms that PE status = UAE Corporate Tax exposure, even if the legal form is not a subsidiary.

Corporate Governance and Compliance:

Item	Branch	Subsidiary
Legal independence	❌ No	✅ Yes
Tax compliance	Part of parent (or standalone for foreign)	Independent reporting
License type flexibility	Limited to parent scope	Full flexibility
Corporate liability	Parent company is liable	Limited to subsidiary

Which Structure Should You Choose?

Choose a Subsidiary if:

• You want full legal independence
• You plan long-term operations
• You need limited liability protection

Choose a Branch if:

• You want to retain control under the parent entity
• Your activities are limited in scope
• You want consolidated financial reporting

Summary Table: Tax Treatment in 2025

Aspect	Branch	Subsidiary
Legal status	Extension of parent	Independent entity
Taxpayer	Parent (or branch for foreign)	Subsidiary itself
Corporate tax registration	✅ Required	✅ Required
Tax return filing	Parent return or separate (foreign)	Separate return
Withholding tax on dividends	❌ None	❌ None
PE risk (for foreign entities)	✅ Possible	Not applicable
Suitable for	Short-term or limited ops	Full-fledged UAE presence

Final Thoughts:

Both branches and subsidiaries are fully covered by the UAE’s Corporate Tax Law — but how they’re taxed and how they report differs significantly. In 2025, as FTA enforcement intensifies, choosing the right structure is crucial for both tax efficiency and regulatory compliance.

Need Help Setting Up or Restructuring in the UAE?

At Think Biz Management Consultancies, we assist with:

• Setting up UAE branches or subsidiaries
• Registering for corporate tax
• Ensuring full FTA compliance and audit readiness

Contact us today to choose the most tax-efficient corporate structure for your UAE expansion.

 

Contact us today for a free consultation.

Contact number: ‪+971 50 983 0334‬

Email ID: info@alphabets.ae