The boardroom in Karachi was quiet except for the rustle of papers.
The Al Asbab Group, a respected family enterprise in Karachi, had thrived for decades by importing machinery parts and supplying Pakistan’s industrial base. Yet the company was reaching a turning point. Global suppliers were urging them to expand their reach beyond Pakistan, and the family was under pressure to decide whether the UAE could serve as their launchpad to international markets.
The decision was not taken lightly. On a humid afternoon in Karachi, the group gathered in its glass-paneled boardroom. The long mahogany table was scattered with financial reports, consultant memos, and printed copies of extracts of different tax laws and guides. A large wall clock ticked steadily, filling the silences between discussions.
At the head of the table sat the Group Chairman, Mr. Rauf, his posture straight but his brow furrowed. It looked as if it was his photo in the frame of his custom-made executive chair, he was so still. Years of cautious leadership made him focus on risk more than opportunity. To his right, the eldest son, Behzad, 25 years old, leaned forward, impatient and ambitious, already convinced that Dubai was the gateway to global trade. The Group CFO, Mr. Akram, with files neatly stacked in front of him, looked more deliberate, ready to test every assumption against tax laws and financial compliance. On the screen at the far end of the room, their UAE consultant, Ghania, appeared via video call, her background blurred artificially.
Rauf: “For years, we’ve focused only on Pakistan. But our suppliers keep asking us to handle distribution across the Middle East. I want us to enter the UAE, not just to serve their market but to make Dubai our hub for global exports. The question is, how do we do this properly?”
Behzad: “Baba, UAE is easy. Everyone says it’s tax-free. We set up a free zone company and we’re done.”
Ghania raised a hand politely.
Ghania: “That was true before, Behzad, but things changed in 2023. The UAE now has a corporate tax. Profits above AED 375,000 are taxed at 9%. Free zones can still enjoy a 0% rate, but only if they meet certain conditions like substance, audited accounts, and no direct mainland sales.”
Akram: “That’s where our challenge lies. If we choose a free zone, we save on tax, but we can’t directly trade with customers inside Dubai mainland. To serve the local UAE market, we’ll need either a mainland entity or a local distributor. A mainland company gives us full access but comes with stricter rules and higher compliance costs.”
Mr. Rauf leaned back, thinking.
Rauf: “And what about Pakistan? If we earn profit in Dubai, will FBR leave us alone?”
Akram: “The UAE entity will be a non-resident company in Pakistan. Any profits earned by that company will not be taxed in Pakistan, however, when these profit are distributed as dividends, the Pakistani shareholders will have to pay dividend tax at 15% in Pakistan.
Rauf: “So, if the UAE company doesn’t distribute the profits, there is no tax in Pakistan?”
Akram: “Yes, no tax in Pakistan, except…”
Rauf: “Except what?”
Akram: “If the UAE company is treated as a CFC in Pakistan, due to its Pakistani ownership or any other criteria specified, any profit earned by the UAE company will be deemed income of the Pakistani shareholder and he would have to pay tax at 15% of such income attributable to his shareholding.”
Rauf: “And what is this CFC exactly?”
Akram: “CFC means a Controlled Foreign Company. It is a non-resident company owned by Pakistani resident shareholders. There are specific shareholding percentage requirements. But in our case, it would not be a CFC as we will be involved in active business i.e. purchasing from unrelated suppliers and selling to unrelated buyers.”
Rauf: “So, no tax in Pakistan until the profits are distributed?”
Akram: “In our case, yes!”
Behzad (wanting to appear involved and relevant): “So we pay 9% in UAE, and then Pakistan wants 15% when we get dividends?”
Ghania smiled.
Ghania: “And, a free zone entity that qualifies for 0% tax reduces that burden further, as long as you meet the compliance rules.”
Akram: “But the compliance is heavy. We’ll need audited IFRS accounts in UAE, VAT registration once turnover exceeds AED 375,000, and reporting to both FTA and FBR. Plus, Pakistan’s disclosure requirements under Section 116A mean we must file a foreign income and assets statement.”
The room fell silent for a moment.
Rauf: “So, we have two options: a mainland company for full UAE access, a free zone company for global exports with limited UAE trade. Which do you recommend?”
Ghania: “For your business model, I suggest a free zone entity in JAFZA or DMCC. It allows 100% foreign ownership, exemption from corporate tax if you qualify, and easy repatriation of profits. For local UAE contracts, you can appoint a mainland distributor or set up a small mainland subsidiary later.”
Behzad’s eyes lit up. “That gives us flexibility to serve Africa, Europe, and the Gulf. Dubai becomes our global hub.”
Mr. Akram adjusted his glasses. “Yes, but we must prepare for dual audits and strict reporting in both countries. This is not about escaping tax. It’s about efficient structure and compliance.”
Mr. Rauf nodded. “Then it’s decided. We will establish a free zone entity in UAE for global exports, and prepare a parallel compliance plan for Pakistan. The future is bigger than one market.”
The decision was made. For Al Asbab Group, the move to UAE was no longer just a possibility. It was the next chapter of growth, balancing opportunity with responsibility.
