Executive Summary

Cash pooling remains a valuable treasury technique for UAE corporate groups to optimise liquidity, reduce external financing costs, and centralise cash and risk management. In the UAE, the prudential recognition of cash pooling is driven primarily by Central Bank of the UAE (CBUAE) prudential standards, which expressly recognise physical pooling subject to strict conditions. From a tax perspective, the Federal Tax Authority’s (FTA) Transfer Pricing Guide acknowledges both physical and notional pooling and sets expectations for arm’s length remuneration and documentation. This article synthesises these frameworks and clarifies what is recognised and required in practice, including recent legislative developments affecting the financial regulatory landscape.

What Is Cash Pooling and Why It Matters

Cash pooling is a treasury arrangement under which a corporate group aggregates cash surpluses and deficits among participating entities to optimise net interest, minimise external borrowing, and centralise liquidity management. In the UAE, this frequently occurs among “related parties” as defined under Article 35 of the Corporate Tax Law, which captures association through ownership or control thresholds.

Well‑structured pooling can create material synergies but also engages regulatory, prudential, tax, and documentation requirements. The practical feasibility of a given pooling model depends on whether it is recognised within CBUAE prudential standards when delivered as a bank product, and on whether the intra‑group flows and pricing satisfy the UAE’s transfer pricing rules and documentation obligations.

Regulatory Framework: Recognition and Boundaries

The UAE treats cash pooling through two complementary lenses:

• Banking prudential recognition and product delivery under CBUAE rules; and
• Arm’s length pricing and documentation under the Corporate Tax Law and FTA Transfer Pricing Guide.

CBUAE prudential standards expressly recognise physical pooling delivered as a banking product. The standards require that only licensed UAE banks may extinguish and consolidate balances. Corporates should not attempt to replicate physical pooling off‑platform or outside a licensed bank product.

In addition, CBUAE’s leverage ratio guidance clarifies how cash pooling is treated when a bank aggregates participating customer accounts into a single balance with daily transfers and no continuing liability for individual balances once transferred. This supports the prudential treatment of physical pooling when configured to extinguish participant balances into a central account.

By contrast, notional pooling—an arrangement that virtually offsets balances without physically moving funds—is not described in CBUAE prudential standards as a recognised bank product for prudential purposes. This does not, however, preclude discussion of notional pooling in the FTA’s transfer pricing context. As such, corporate groups should understand that, in practice, UAE banks generally offer physical pooling products calibrated to CBUAE conditions; where “notional” features are discussed for tax purposes, these are subject to bank product availability, enforceability of set‑off, and compliance with CBUAE prudential constraints.

Finally, in light of the enactment of a new CBUAE law in 2025 consolidating and modernising financial sector regulation, existing CBUAE regulations, standards and circulars continue to apply until replaced. As of the date of this article, the capital adequacy and leverage ratio standards cited below remain the operative prudential references for cash pooling features.

Physical Pooling: Conditions and Practical Requirements

Under CBUAE’s capital adequacy and leverage ratio standards, physical pooling is recognised when provided by a licensed bank and configured to meet specific conditions. In practice, UAE banks structure such products to satisfy the following core requirements:

• Single central account and extinguishment of balances. Balances of participating accounts must be transferred into a single central account. Once transferred, the participating accounts’ balances are extinguished and the bank should not be liable on an individual account basis for those balances. The central account reflects the consolidated net position.
• Bank’s enforceable right and discretion to transfer. The bank must have a legally enforceable and unconditional right to sweep and consolidate balances into the central account, with discretion to exercise that right when necessary.
• Transfer frequency. Transfers should occur at least daily, or at a frequency the CBUAE would consider adequate for genuine liquidity centralisation and extinguishment.
• No maturity mismatches. All participant balances swept into the pool must be on demand or overnight. Maturity mismatches among pooled balances are not permitted.
• Interest and fees on the consolidated balance. The bank should apply interest and fees based on the consolidated central balance, not on the pre‑sweep individual account balances.
• Delivery only through a licensed bank product. Only UAE licensed banks may operate physical pooling arrangements that extinguish and consolidate balances. Corporate‑operated arrangements outside the banking framework do not meet the prudential conditions and should be avoided.

These features are consistent with the leverage ratio treatment that deems participating accounts extinguished into a single balance where daily transfers occur and the bank is not liable at the individual account level upon transfer. Corporate treasury teams should ensure that bank documentation and operational flows reflect these conditions and that there is clarity on the bank’s rights, daily sweep mechanics, and liability posture.

Notional Pooling: Tax Recognition vs. Prudential Constraints

The FTA’s Transfer Pricing Guide recognises both physical and notional pooling for purposes of arm’s length analysis. Notional pooling allows interest optimisation through virtual aggregation without physical transfers, and banks may require cross‑guarantees to permit set‑off across participant accounts.

However, the prudential framework relevant to UAE banks expressly describes physical pooling, and UAE bank products are calibrated to those prudential standards. In practice:

• Access to notional pooling features depends on whether a UAE bank offers a product that aligns with CBUAE prudential requirements (including enforceable set‑off and no maturity mismatches), and whether the bank can avoid retaining individual account liability after set‑off.
• Where an arrangement functions purely notionally without daily extinguishment of individual balances into a central account, it may not satisfy the prudential conditions that underpin recognised physical pooling and may therefore not be available as a bank product in the UAE onshore market.

For tax and transfer pricing purposes, the existence of a notional pool within a group may still be analysed under the FTA Guide. But feasibility in the UAE market turns on whether a bank product exists that can be operated consistently with CBUAE prudential requirements. As a result, UAE corporate groups generally employ physical pooling products offered by local banks.

Arm’s Length Principle and Pricing in Cash Pooling

The Corporate Tax Law adopts the arm’s length principle for related party and connected person transactions. The FTA Transfer Pricing Guide provides specific guidance for financial transactions, including cash pooling, and aligns with international standards.

Key implications for pooling:

• Characterise the treasury function. The cash pool leader’s remuneration depends on the actual functions performed, assets used, and risks assumed. A leader performing routine coordination, reporting, basic cash forecasting and limited risk should generally receive a routine service return. Where the leader manages external bank relationships, optimises interest, or bears contingent liability risks, a higher return, often through an interest spread, may be justified.
• Allocate synergy benefits. Pool members should receive arm’s length interest for debit and credit positions. The selection of interest benchmarks and spreads should reflect market conditions, group credit profile, collateral, tenor, and any guarantees or set‑off rights. After remunerating the leader, any synergy benefits should be allocated among participants via the pricing mechanism.
• Align with bank product economics. Because UAE pooling must be delivered through a bank product, the pricing of intra‑group debit and credit positions should consider external bank charges/credits on the consolidated balance and any fees for the pooling service. The internal pricing model should reflect the net economics of the third‑party banking arrangement.
• Cross‑guarantees and set‑off. In arrangements with cross‑guarantees or set‑off rights, the impact on risk allocation and pricing should be explicitly considered. If a member’s deficits are effectively supported by other participants, the pricing for deficit positions should reflect the altered risk profile.

Transfer Pricing Documentation

Article 55 of the Corporate Tax Law permits the FTA to require disclosure of related party transactions. The FTA Transfer Pricing Guide outlines the documentation suite:

• Disclosure Form. Mandatory for taxable persons with material related party or connected person transactions, including intercompany financing and cash pooling.
• Master File and Local File. Required for “major businesses” under Ministerial Decision No. 97 of 2023, providing group‑level information and local testing of intercompany arrangements, including pooling.
• Country‑by‑Country Report. Applicable for MNE groups meeting the revenue threshold under Cabinet Resolution No. 44 of 2020.
• Additional Information. The FTA may request contemporaneous records supporting the arm’s length nature of pooling pricing and allocations, including benchmarking and functional analysis of the treasury entity.

Even where a Master File and Local File are not required, taxpayers must keep reasonable records substantiating the arm’s length character of pooling transactions.

Cross‑Border Considerations

The UAE’s liberal foreign exchange regime and absence of general capital controls permit cross‑border pooling structures without routine prior approval. However:

• Banking channel. Cross‑border pooling still must be implemented through a licensed bank product that complies with CBUAE prudential requirements for UAE participants.
• Withholding and treaty positions. Cross‑border interest flows within pooling should be reviewed for domestic law characterization and applicable treaty relief.
• Free zone entities. Where free zone entities participate, particular attention is needed to maintain any preferential tax regime conditions and to ensure that transfer pricing, substance, and other eligibility criteria are preserved.
• Economic substance and outsourcing. If pooling centralises activities into a treasury entity, consider whether additional substance or outsourcing controls are triggered, especially where key activities or systems are located outside the UAE banking channel. While pooling is delivered through a bank product, internal treasury processes and decision‑making may still raise group‑level governance or substance considerations.

Practical Implementation Guide for UAE Groups

In structuring a compliant and efficient cash pool:

• Select a UAE bank product that expressly delivers physical pooling meeting CBUAE conditions, including daily transfers, enforceable sweep rights, consolidated interest, and no maturity mismatches.
• Ensure bank documentation and corporate intra‑group agreements are aligned. The bank’s enforceable rights and operational mechanics should be mirrored in intercompany policies and agreements that govern participant obligations, pricing, and allocations.
• Design an arm’s length pricing policy for debit and credit positions, benchmark the pool leader’s remuneration based on performed functions and assumed risks, and document the basis for synergy allocation.
• Maintain robust transfer pricing documentation, including the Disclosure Form, and where required, Master File and Local File, supported by contemporaneous benchmarking and functional analysis.
• Monitor regulatory updates. The new 2025 CBUAE law consolidates financial regulation and preserves existing regulations until replaced. Maintain awareness of any CBUAE circulars or standards that further specify liquidity management, large exposures, or related party banking that could indirectly affect pooling features or bank permissions.

Conclusion

In the UAE, the practical route to cash pooling is through CBUAE‑compliant physical pooling products offered by licensed banks. Prudential standards recognise physical pooling under clear conditions—daily transfers into a single central account, enforceable bank sweep rights, extinguishment of participant balances upon transfer, on‑demand or overnight tenors, and consolidated interest. The FTA’s Transfer Pricing Guide requires that pooling be priced at arm’s length, with appropriate remuneration for the pool leader and fair allocation of synergies to participants, supported by contemporaneous documentation.

Implemented properly, a UAE cash pool can materially enhance liquidity efficiency while maintaining regulatory and tax compliance. The key is to align the bank product’s prudential features with a robust intra‑group pricing and documentation framework that reflects actual functions, risks, and external economics.

Authors: Ashraf Hendi, Partner and Maryam Tarek, Associate.