Management services, group recharges and consultancy
Accounting for management services companies, whose every fee is read twice
Group management fees, shared-service recharges and consultancy retainers. Each one is a VAT supply and a Corporate Tax price at the same time, and each reading has its own rules. We build the cost base, the markup and the paper trail before anyone asks for them.
What a fee feels like, and what it is for tax
Inside a group, or between an owner and the company, a fee can feel like moving money between pockets. The FTA reads each one as a transaction between two parties, and asks what independent parties would have done.
“A recharge to our own subsidiary.”
A supply, with VAT on it
Unless both companies sit in the same VAT group, or the client is outside the UAE and the export conditions are met, the fee is standard-rated at 5%.
“A fee we set once a year.”
A related-party price
It has to be the price independent companies would agree for the same service. If it is not, the FTA can adjust it, in either company’s return.
“The owner’s management fee.”
A payment to a connected person
Deductible only to the extent it matches the market value of the service actually provided. The rest is added back.
“Hours we have not billed yet.”
Revenue already earned
For a consultancy, work done on a retainer or project but not yet invoiced is work in progress. It belongs in the period the work was done, not the month the invoice goes out.
Which costs can carry cost plus 5%
A holding company’s shared-service costs for a year, to be recharged to its subsidiaries. The FTA’s transfer pricing guide accepts cost plus 5% for routine support without a benchmarking study, as long as the records show the work really is routine. The group CEO’s time is not routine.
The first question is never the markup. It is the cost base: which costs went in, how each was split between the subsidiaries (headcount, revenue, tickets raised), and whether each subsidiary actually received something it would have paid an outsider for.
Where the Master File and Local File apply — revenue of AED 200 million or more, or a multinational group with AED 3.15 billion — that reasoning is written down in a set form. Below the thresholds it still has to exist; it is simply shorter.An illustrative cost pool, not a benchmark.
One fee, three invoices
The routine part of that pool, invoiced to one subsidiary. Choose where the subsidiary sits. The VAT line changes. The Corporate Tax reading does not.
Tax invoice
Group services, year ended 31 December
From Holding company
To Operating subsidiary
Cost base
Actual costs, with the allocation key written down. If the key changes from year to year, the reason should too.
Markup, 5%
Allowed without a benchmark because these three services are routine support, and the file shows it.
The VAT line
Standard-rated at 5%: the two companies are separately registered. The subsidiary can normally recover it as input tax if its own supplies are taxable.
Supplies between members of one VAT group are disregarded for VAT, so no VAT is charged. The fee is still a related-party price for Corporate Tax.
Zero-rated as an export of services when the client is outside the UAE and the conditions are met. Keep the evidence of where the client is.
In the subsidiary’s books Same in all three
Deductible because the price is at arm’s length and the services were actually received. Keep evidence of the benefit: reports, tickets, payroll runs.
What we do, and how often
Management fees go wrong at the year end because nobody looked at them during the year. So most of the work is monthly.
Every month
Books by entity, intercompany reconciled
Each company in the group on its own ledger, with intercompany balances agreed on both sides before the month closes.
Management fees and recharges invoiced
On the agreed key and markup, with the right VAT treatment for where each subsidiary sits.
Time, retainers and work in progress
For consultancies: unbilled work recognised in the month it was done, and retainers released as they are earned.
VAT returns
Filed for every return period, with output VAT on the fees and input VAT on what the group buys in.
Every year
The transfer pricing file
Cost base, allocation keys, markups and the benefit test, documented. A Master File and Local File where the thresholds are met.
Corporate Tax returns
For each company, at 9% above AED 375,000, with connected-person payments tested against market value.
Free zone qualifying income
Headquarter services to related parties can be qualifying income. We check the rest stays within the de minimis limit: the lower of 5% of revenue or AED 5 million.
Group reporting and the audit
Consolidation, eliminations and the file your auditor asks for, ready before they ask.
Four steps, then it runs
Most groups have a documented fee and a clean monthly close within their first quarter with us.
Map the group
Which company does what for whom, which fees exist today, and which VAT and tax registrations sit behind them.
Build the cost base
Shared costs pooled, allocation keys chosen, routine and senior-management work separated.
Agree the fee
Markup set and supported, an intercompany agreement in writing, and the first invoices issued on it.
Run it monthly
Books, recharges and VAT every month; the transfer pricing file and the returns every year.
Questions about management fees
Can we just charge our subsidiaries cost plus 5%?+
For routine support — accounting, HR, administration, IT support — the FTA’s transfer pricing guide accepts cost plus 5% without a benchmarking study, provided your documentation shows the services are low value-adding. Services of senior management, and anything that is part of the group’s core business, do not qualify and need a markup supported by comparables.
Do we charge VAT on management fees to a group company?+
Yes, at 5%, unless both companies are members of the same VAT group — supplies within a VAT group are disregarded — or the recipient is outside the UAE and the conditions for zero-rating an export of services are met.
Is the management fee I pay myself deductible?+
Payments to a connected person, such as an owner or director, are deductible only to the extent they match the market value of the services actually provided. Anything above that is added back to taxable income.
When do we need a Master File and Local File?+
When the company’s revenue in the tax period is AED 200 million or more, or it belongs to a multinational group with consolidated revenue of AED 3.15 billion or more. Below those levels the arm’s length rule still applies, so the reasoning behind each fee should still be on file.
Can a free zone company earn management fees at 0%?+
Headquarter services provided to related parties are a qualifying activity for a Qualifying Free Zone Person, so that income can be taxed at 0%, if every other condition is met: adequate substance in the free zone, audited accounts, arm’s length pricing, and non-qualifying revenue within the lower of 5% of total revenue or AED 5 million.
Talk to someone who has defended a management fee before
Thirty minutes, a look at the fees that move between your companies and how they are recorded, and an honest view of what a reviewer would ask.
- Free first consultation
- No obligation
- Response within 24 hours