Intercompany Recharges: Documentation & Evidence

Many UAE businesses operate multiple related entities such as holding companies, subsidiaries, or branches of international groups. These structures make business expansion easier, but they also introduce accounting and tax complexities when money moves between related companies.

When one entity provides a service, incurs costs, or pays an expense for another, the transaction must be supported by an intercompany recharge. Under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, these recharges must be commercially justified, fairly priced, and properly documented to meet the arm’s length principle.

This article explains what intercompany recharges are, why documentation is essential, and how UAE businesses can manage them smoothly with clear processes and cloud accounting tools like Xero.

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What Are Intercompany Recharges

An intercompany recharge occurs when one entity within a group charges another for costs or services provided. It ensures each entity bears its fair share of group-wide expenses and reflects its true income and expenditure.

Common examples include:
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• A holding company paying marketing or software subscription fees for the group and recharging subsidiaries based on usage.
• A parent company providing management or administrative services to its UAE branch and billing accordingly.
• A Dubai entity employing staff who split time between two related companies, with salary costs divided proportionally.

Without proper recharges, group entities may overstate or understate profits, leading to incorrect corporate tax reporting and possible issues during FTA reviews.

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Why Intercompany Recharges Matter

1. Fair and Accurate Financial Reporting

Recharges ensure that each company’s financial results show the correct level of costs and income. This aligns with Article 54 of the Corporate Tax Law and Ministerial Decision No. 84 of 2025, which require taxable persons to maintain accurate and auditable financial statements.

2. Compliance with the Arm’s Length Principle

According to Article 34 of the Corporate Tax Law, transactions between related parties must be conducted as if they were between independent entities. The pricing of recharges must therefore be consistent with market rates, supported by logical and transparent calculations.

3. Transparency for FTA Reviews

Under the FTA’s Corporate Tax General Guide (2023), the authority may request documentation to explain how intercompany charges were calculated. Clear records reduce the risk of adjustments, penalties, or lengthy audits.

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Common Intercompany Recharge Scenarios
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• Management Fees: A parent company provides HR, accounting, or strategy support and allocates costs to subsidiaries based on time or effort.
• Shared Office Costs: Rent and utilities are paid by one entity and proportionally charged to others that use the premises.
• Software and IT Services: Centralised subscriptions for tools like Xero or Microsoft 365 are reallocated to group companies based on licenses or users.
• Marketing and Branding: Group-wide campaigns are divided among entities according to revenue or participation.
• Employee Secondment: When employees work across multiple entities, salary costs are allocated based on time worked for each.

These examples show how recharges can arise in daily operations. The challenge is maintaining adequate documentation to prove their fairness and validity.

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Legal Requirements Under UAE Corporate Tax

The Corporate Tax Law (Article 34 and Article 55) and related ministerial decisions require that all related-party transactions, including intercompany recharges, must:
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• Have a commercial purpose.
• Reflect arm’s length pricing.
• Be supported by written documentation that demonstrates how the value was determined.

Businesses must also maintain audited financial statements if they meet certain thresholds (for example, revenue exceeding AED 50 million or qualifying as a Free Zone Person, as outlined in Ministerial Decision No. 84 of 2025).

Proper documentation provides the evidence needed to demonstrate compliance if reviewed by the FTA.

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The Arm’s Length Principle Explained

The arm’s length principle ensures that related parties transact as if they were unrelated. If a Dubai holding company provides accounting services to a subsidiary, it cannot assign an arbitrary fee. The charge should be comparable to what an independent provider would charge for the same service.

Businesses can support their pricing by:
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• Comparing market rates for similar services in the UAE.
• Using a cost-plus method, where costs are allocated with a reasonable markup.
• Keeping written notes explaining how the amount was calculated.

The FTA does not expect complex transfer pricing reports from small businesses, but it does require a logical, evidence-based approach that can be explained clearly.

How to Document Intercompany Recharges

1. Intercompany Agreements

Prepare written agreements that define:
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• The nature of the service or expense.
• The calculation method used (for example, time, headcount, or usage).
• Billing frequency and payment terms.

Simple, signed agreements demonstrate that the arrangement is commercially valid.

2. Cost Allocation Working Papers
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These show how shared costs are split across entities. Examples include:
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• Rent divided by area used.
• Salaries allocated by time worked.
• Marketing costs distributed by revenue contribution.

Keep these calculations as part of your accounting records.

3. Intercompany Invoices
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Each recharge must be supported by an invoice that includes:
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• A clear description of the service or expense.
• The relevant period covered.
• The calculation or allocation method.

Using Xero, businesses can issue recurring invoices with digital attachments, making it easier to stay consistent.

4. Supporting Evidence

Go beyond invoices by maintaining proof that services were actually provided. Examples include:
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• Time logs or reports.
• Email correspondence or project summaries.
• Deliverables such as payroll reports, marketing materials, or performance data.

This evidence shows that the recharge reflects genuine business activity.

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How Xero Helps Simplify the Process

Many SMEs still handle intercompany charges manually in spreadsheets, which can lead to errors. Xero streamlines the process by allowing users to:
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• Create linked invoices between related entities.
• Use tracking categories to allocate costs accurately.
• Attach supporting files like agreements and receipts.
• Generate month-end reports showing all intercompany transactions.

This automation ensures your records are complete, transparent, and audit-ready.

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Preparing for an FTA Review
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If the FTA requests clarification on related-party transactions, being prepared saves time and stress.

Follow these best practices:
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1. Centralize Documentation: Keep agreements, invoices, and calculations in one folder, ideally in cloud storage.
2. Explain the Logic: Include a short description of why and how costs were shared.
3. Review Annually: Check allocation methods and rates to ensure they remain fair.
4. Reconcile Accounts: Make sure the recharge recorded as an expense in one entity matches the income in another.
5. Retain Records: Keep all documentation for at least seven years, as required by the Corporate Tax Law.

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Common Mistakes to Avoid
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1. Lack of written agreements.
2. Arbitrary or unsupported allocations.
3. Missing evidence of actual service provided.
4. Delayed or inconsistent invoicing.
5. Ignoring VAT implications on intercompany services.
6. Failure to reconcile balances between entities.

Each of these mistakes can attract unnecessary FTA scrutiny during audits.

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The Role of Professional Bookkeeping

Accurate bookkeeping ensures intercompany transactions are recorded consistently and backed by evidence. Professional accountants can help by:
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• Setting up templates for agreements and invoices.
• Maintaining documentation and allocation records.
• Performing monthly intercompany reconciliations.
• Integrating these processes into Xero for automation and visibility.

With proper bookkeeping, you can demonstrate compliance and maintain a strong audit trail for the FTA.

Conclusion

Intercompany recharges are essential for fair reporting and corporate tax compliance in the UAE. With proper documentation, logical pricing, and reliable systems like Xero, even small business groups can manage them efficiently.

Clear agreements, transparent records, and consistent evidence not only protect you during audits but also strengthen financial credibility.

For help setting up intercompany recharge processes or ensuring compliance with UAE Corporate Tax Law, contact Alpha Pro Partners. Our experts can implement Xero systems, streamline documentation, and make your month-end recharges simple and audit-ready.

Frequently Asked Questions

What is an intercompany recharge?

It’s a transaction where one company in a group charge another for shared services, costs, or benefits.

Why do intercompany recharges matter for UAE corporate tax?

They show that related-party transactions are priced fairly, which is required under the UAE Corporate Tax Law.

What documentation do I need for intercompany recharges?

You’ll need agreements, invoices, cost calculations, and proof that services were actually provided.

Do I need to issue an invoice for every recharge?

Yes, invoices make the transaction official and provide a record for both entities’ accounts.

Can I allocate costs without written agreements?

You can, but it’s risky. Written agreements help demonstrate that transactions are genuine and commercially valid.

Are intercompany recharges subject to VAT?

Some can be. It depends on the nature of the service and whether both entities are VAT-registered. Always check before posting.

How should I determine fair pricing for intercompany recharges?

Use the arm’s length principle — what an independent business would pay for the same service or cost.

What happens if the FTA questions my recharges?

You’ll need to provide evidence like agreements, calculations, and correspondence showing how the charges were determined.

Can I automate intercompany recharges?

Yes, cloud accounting systems like Xero allow you to set up recurring invoices and attach documentation automatically.

How long should I keep intercompany records?

At least seven years, as required under UAE corporate tax documentation rules.

What if I forget to post a recharge for a few months?

Catch up as soon as possible, and document the delay with a short note. Consistency matters more than perfection.

How can Alpha Pro Partners help?

They can help set up efficient month-end closing processes, handle intercompany reconciliations, and maintain compliant records using Xero and other tools.

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