High Seas Sales and Third-Country Trading from the UAE: How to Structure It Properly

Plenty of trading businesses never touch the goods they sell. A machine is bought from a factory in China, sold to a distributor in Saudi Arabia, and shipped straight from one to the other. The company that signs both contracts, issues the invoice and keeps the margin can sit in Dubai.

That model goes by several names: high seas sales, third-country trading, third-port trading or merchanting trade. The UAE suits it well. But the right setup depends on how much profit you expect, where your customers are and how much real activity you can run from the UAE, not on which licence is cheapest. This guide walks through those decisions the way we walk through them with clients.

1. What High Seas Sales and Third-Country Trading Actually Mean

High seas sales usually describes selling goods while they are still in transit, often before they arrive or clear customs at the destination. The exact legal meaning and paperwork vary from country to country.

Third-country trading is the wider idea: your company buys goods from one foreign country and sells them to another, and the goods never pass through the country where your company is registered.

In practice you will hear the same model described in a few different ways:

• High seas sales or high-sea trading
• Third-country trading or third-port trading
• Cross-border merchant trading
• Merchanting trade and re-export trading
• International wholesale and commodity trading

The people who use it tend to share a profile. They already know a supplier base in one region and a customer base in another, and they earn their margin from sourcing, negotiating, financing and coordinating the deal rather than from storing or handling the goods. Typical examples are commodity merchants, export agents who have grown into principals, family trading businesses moving their invoicing hub to the UAE, and manufacturers' sales arms selling into Africa, the GCC or Europe.

The UAE's Federal Tax Authority (FTA) covers this situation directly. Its Corporate Tax guide on Free Zone Persons discusses high-sea sales and third-port trading, including a worked example (Example 82) where goods move directly between two foreign countries through a trading company in a Designated Zone.

A Worked Example: Dubai Company, Chinese Supplier, Kenyan Buyer

1. Your company agrees to buy the goods from the Chinese supplier for USD 400,000.
2. Separately, it agrees to sell them to the Kenyan distributor for USD 440,000.
3. The supplier ships directly to Kenya on the agreed Incoterms.
4. Your company invoices the Kenyan buyer.
5. It pays the supplier and collects from the buyer through its UAE bank account.
6. It books the deal, including the USD 40,000 gross margin.

That USD 40,000 is gross margin, not taxable profit. Operating costs, financing, exchange differences and accounting adjustments all come off before tax is worked out. You also need paper evidence that your company really owned the goods and carried commercial risk: contracts, title transfer, shipping documents and proof that the buyer met its own import rules.

How the Paperwork Moves in a High-Sea Sale

Most of the risk in this model sits in the documents, so it helps to know how they usually flow. The Incoterms you agree with the supplier and with the buyer decide who arranges shipping and insurance, and the point at which risk passes. Many traders buy on FOB or CFR terms and resell on CFR or CIF, so that responsibility hands over cleanly while the goods are at sea.

The bill of lading is the key document. Because it can represent ownership of goods in transit, endorsing and passing it on is how title is transferred during a high-sea sale. Some traders ask the shipping line for a switch bill of lading, which replaces the original shipper and consignee details so the supplier and buyer do not see each other. That is a normal commercial practice, but the new documents must still describe the goods, their origin and the shipment truthfully. Changing a bill of lading to hide the true origin of goods, or to get around sanctions or customs rules, is a serious offence.

Your sales invoice, packing list, certificate of origin and insurance documents need to line up with the bill of lading. When they do not match, the buyer's customs authority, your bank or your auditor will usually spot it.

2. Why Traders Run These Deals Through the UAE

Corporate Tax That Stays Predictable

Under the standard regime, UAE Corporate Tax is 0% on taxable income up to AED 375,000 and 9% above that. A Qualifying Free Zone Person can pay 0% on qualifying income if it meets every condition (more on that in section 5). For high-volume traders with solid margins, that difference can be significant.

No Personal Income Tax on Salaries

The UAE does not generally tax employment salaries, which matters to owners and managers who relocate. It does not, however, switch off tax in your home country. Tax residence, controlled foreign company rules and permanent establishment risk all still need checking. A UAE visa or company does not make foreign tax disappear on its own.

A Dirham Pegged to the US Dollar

The dirham is pegged at about AED 3.6725 to USD 1. If you buy and sell in dollars, that removes AED/USD swings from your planning. It does nothing for euro, yuan or rupee exposure, and banks still charge for conversions.

0% UAE Withholding Tax

The UAE withholding tax rate under the Corporate Tax law is currently 0%, so paying overseas suppliers or receiving foreign sales proceeds normally carries no UAE withholding. The other country may still levy its own taxes, and UAE banks still screen every transfer for sanctions and AML. If you want the detail on scope and exceptions, see how the UAE withholding tax rules work.

The People and Infrastructure Trade Needs

Dubai puts banks, freight forwarders, shipping agents, customs specialists and advisers within reach, and its time zone overlaps working hours in Asia, Africa and Europe. Many free zone and mainland trading activities allow 100% foreign ownership, and companies can sponsor residence visas for owners and staff, depending on the activity, premises and visa quota.

3. Designated Zone, Regular Free Zone or Mainland?

This is the decision that shapes everything else. For a high-seas trading model, the three routes compare like this:

One point that trips people up: a zone's status as a Designated Zone for VAT and its eligibility for a Corporate Tax qualifying activity are related but separate questions. Always check the exact entity, licensed location and rules that apply.

Designated Free Zone: For Traders Chasing 0% on Qualifying Income

For an established B2B trader with healthy profits, a properly run designated-zone company can bring real tax savings. Under Ministerial Decision No. 229 of 2025, distribution of goods or materials in or from a Designated Zone is a Qualifying Activity when its conditions are met, covering who the customer is, where activities happen and how goods move. That can include goods shipped directly from the supplier's country to the buyer's country. Holding a licence from a designated-zone authority is not enough on its own; every QFZP condition must be met.

Regular Free Zone: For Traders Who Want Cost and Simplicity

A regular free zone works well if you want a UAE trading company without the heavier 0% structure. Depending on the authority, you can trade from a flexi-desk or shared office, apply for visas, keep your accounts and run cross-border deals. You will normally pay 9% on taxable income above AED 375,000, and you still need proper accounts, Corporate Tax registration and filing, and AML and banking compliance. Regular free zone companies are not shut out of QFZP status entirely, but ordinary distribution that requires a Designated Zone should not be assumed to qualify.

Mainland: When You Also Sell Inside the UAE

If high-seas trading is only part of the plan and you also want UAE wholesale, retail or distribution, a mainland company is usually more practical. It falls under the standard tax regime. If your customers are almost all overseas and the goods never enter the UAE, mainland is often not the most cost-efficient choice. For the wider trade-offs beyond trading, our comparison of mainland and free zone companies is a useful next read.

4. Free Zones Traders Often Shortlist for This Model

These are the authorities our clients ask about most for high-seas and third-country trading. Designated-zone status depends on the exact location and premises, so treat this as a shortlist to verify, not a ranking.

• Jebel Ali Free Zone (JAFZA), Dubai. Suits established traders and distributors who value port access, warehousing and logistics.
• Dubai Airport Freezone (DAFZA), Dubai. Worth a look for air cargo, electronics and other high-value goods.
• RAKEZ, Ras Al Khaimah. A cost-conscious option with commercial and industrial facilities. Not every RAKEZ location or licence meets the designated-zone distribution rules.
• DMCC, Dubai. Popular for commodities, metals and precious stones. The commodity and designated-zone rules need to be checked separately.
• IFZA, Dubai. A practical regular free zone for traders happy to stay in the standard Corporate Tax regime.
• Meydan, the Sharjah free zones and some northern-emirate zones can also fit, depending on licensing, premises, visas and banking.

Our advice: choose the authority only after the trading activity, premises, tax position, shareholder profile and expected transaction flow are clear. A well-known free zone address does not, by itself, make a company eligible for 0% tax.

5. Can High Seas Sales Qualify for 0% Corporate Tax?

Yes, in the right structure, but the bar is high. The Qualifying Free Zone Person rules come from the Corporate Tax Law, Cabinet and Ministerial Decisions, and FTA guidance. We explain the full Qualifying Free Zone Person rules separately. Here is how the conditions play out for a trading company specifically.

Your Income Has to Be the Right Kind

For designated-zone distribution, the company generally buys and resells goods to customers who resell them, or process or alter them for sale or resale. Selling to foreign distributors can fit. Selling to final consumers, or other excluded or non-qualifying sales, puts the 0% rate at risk.

You Need Real Substance in the Zone

The company must carry out its core income-generating activities in the zone, with enough qualified people, management, premises, assets and spending to match the business, plus evidence of real commercial decisions. There is no fixed headcount or office size that applies to everyone. But a flexi-desk address alone will not show that a large international trading operation is run from the UAE.

For a trading company, the activities that usually count as core are the ones that earn the margin. A practical checklist we use with clients:

• Who negotiates prices and terms with suppliers and buyers, and where do they sit?
• Who decides which deals to accept and which risks to take?
• Where are contracts signed, orders placed and shipments coordinated?
• Who manages credit risk, payments and foreign exchange?
• Are there enough qualified people, either employed or properly supervised, to handle the volume of deals?
• Do the premises, systems and spending match the size of the business?

Non-Qualifying Revenue Has to Stay Small

Non-qualifying revenue must stay within the lower of 5% of total revenue or AED 5 million. It is measured on revenue, not profit. A company with AED 40 million in revenue, for example, would generally have a ceiling of AED 2 million. Breaching the conditions can cost you QFZP status for that tax period and the next four.

Audited Accounts and Arm’s-Length Pricing

A QFZP must keep audited financial statements, so accounting, title records and year-end audit planning should be built in from the start. Deals with related parties must follow transfer pricing rules. You cannot pick a convenient margin and book it in the UAE without the functions, assets and risks to back it up.

A simple example: if your Dubai company buys from a related factory abroad and resells to an unrelated distributor, the price it pays the factory needs to reflect what independent parties would agree, given the work and risk each side takes on. If the Dubai company only processes invoices while the factory's team negotiates the sales, a large margin in Dubai will be hard to defend. Documenting the functions, assets and risks on each side, and keeping a benchmark of comparable margins where required, protects the structure. This is where proper transfer pricing documentation earns its cost.

Extra Audit Work for Distributors from 2026

FTA Decision No. 6 of 2026 added agreed-upon procedures for qualifying designated-zone distributors, applying to tax periods starting on or after 1 January 2026. An independent auditor carries out specified tests on top of the normal financial statement audit. Here is what an agreed-upon procedures report involves. For high-turnover traders, this extra cost belongs in the decision on whether 0% is worth pursuing.

6. Designated or Regular Free Zone? Run the Numbers First

The right answer depends on taxable profit, not turnover. A company selling AED 50 million at a 1% net margin is in a very different position from one selling AED 10 million at 20%. Here is a simple illustration under the standard regime:

This assumes taxable profit equals the margin, with no reliefs or adjustments. It is an illustration, not a calculation for your company.

At the smaller end, a trader with AED 500,000 of taxable profit would normally pay AED 11,250. If running a compliant 0% structure costs noticeably more each year in premises, staff, audit and extra procedures, the regular free zone is the better deal. At AED 5 million of taxable profit, the incentive to look at QFZP eligibility is much stronger. Compare the expected saving with the full annual cost, and think about what happens if you fail a condition later.

A quick way to frame the decision with your adviser:

• What taxable profit do you realistically expect in years one to three?
• Will most customers resell or process the goods, or are some end users?
• Can you put real people and decision-making in the zone from the start?
• What would the extra premises, staff, audit and procedures cost each year?
• How likely is it that UAE sales will grow and change the picture later?

7. Can You Invoice Without the Goods Entering Dubai?

Yes. A properly licensed UAE trading company can generally buy from an overseas supplier and sell to an overseas customer without the goods entering the UAE, as long as its licence covers the activity and the deal follows the relevant trade laws. A Dubai company could buy textiles in India and sell them to a distributor in Germany, with the goods shipped straight from India to Germany, and handle the invoicing and payments through its UAE account.

What matters is that your company does real trading work: negotiating, pricing, taking ownership and carrying risk, not just issuing invoices for someone else. Keep this file for every deal:

1. Purchase orders, supplier contracts and purchase invoices
2. Sales agreements and your sales invoices
3. Bills of lading, airway bills or other transport documents
4. Incoterms and documents showing when title and risk pass
5. Due diligence on customers and suppliers
6. Payment proofs and bank records
7. Customs, origin and import documents where they apply
8. Evidence of negotiations, pricing decisions and how the business is run

If you are claiming QFZP status, your records also need to show the qualifying nature of the activity, the customer's status, your designated-zone operations and the audit requirements.

Never set up a UAE company just to put an invoice between the real seller and buyer, or to hide who owns the business, where the profit comes from or where it is managed. That kind of arrangement creates tax, banking, AML and legal problems in several countries at once.

8. Banking and Moving Money

For most traders, banking is the make-or-break step. A UAE trading company can apply for a corporate account and, if approved, use international transfers, multi-currency accounts, trade finance and foreign exchange. Banks such as Emirates NBD, Mashreq, RAKBANK and Wio serve trading businesses, but each decides on its own risk assessment. We help traders prepare the corporate bank account file that banks expect for this kind of model.

The UAE has no TDS or TCS-style collection on ordinary outward commercial payments, and its Corporate Tax withholding rate is 0%. That helps when paying suppliers, receiving sales proceeds or distributing profits. Expect banks to ask for purchase invoices, shipping documents, supplier contracts, source of funds and the commercial reason behind payments. And remember the destination country may still apply its own withholding or other taxes.

When you apply for the account, expect the bank to ask for:

• Expected annual turnover and typical transaction sizes
• The countries you buy from and sell to
• Main suppliers and customers, with sample contracts or invoices if you have them
• The product categories you trade
• How goods will ship and which Incoterms you use
• Source of funds and source of wealth for the shareholders

Getting Paid Safely: Letters of Credit and Trade Finance

In a high-sea sale you often pay the supplier before your buyer pays you, so payment security matters as much as the margin. Traders commonly use documentary letters of credit, where a bank pays once the agreed shipping documents are presented. Two versions suit this model in particular: a transferable letter of credit, where you pass part of your buyer's credit on to your supplier, and back-to-back letters of credit, where your bank issues a new credit to the supplier on the strength of the one you received.

Documentary collections, advance payments and trade credit insurance are other options, each with a different balance of cost and risk. UAE banks will only offer trade finance once they understand your trading history, counterparties and document flow, which is another reason to have the paperwork organised from the first deal.

9. VAT When the Goods Never Reach the UAE

If the goods are outside the UAE and never enter it, the sale may fall outside the scope of UAE VAT under the place-of-supply rules. Do not decide that just because your company holds a free zone licence. Look at where the goods are at the relevant time, how the supply chain is contracted, whether the goods ever enter the UAE and who the parties are.

A designated free zone does not make every transaction VAT-free; its VAT rules have specific conditions about goods and how they move. Foreign VAT, GST, duties and import obligations can still arise in the supplier's or buyer's country. We recommend assessing VAT and Corporate Tax separately before you start trading, including whether and when you need to register for VAT.

10. Setting Up a High-Seas Trading Company, Step by Step

1. Map the trade. Products, supplier and customer countries, expected turnover and margins, how goods ship, and whether you will sell to UAE customers at all.
2. Pick the route. Compare designated free zone, regular free zone and mainland on tax eligibility, commercial needs, running costs and compliance.
3. Choose the licence activity. General trading, import-export or commodity trading, depending on the goods. Some goods need extra approvals. Our overview of UAE trading licence types explains how these differ.
4. Incorporate and complete KYC. Shareholder passports, addresses, beneficial ownership details and, for corporate shareholders, attested company documents.
5. Receive your licence and company documents.
6. Arrange premises and visas. Flexi-desk, office or other approved premises, and residence visas where needed.
7. Open the bank account. Prepare a clear business profile with expected flows, countries of trade, suppliers, customers, product types and transaction sizes.
8. Set up accounting and tax.Corporate Tax registration, a VAT assessment, bookkeeping, deal documentation and internal controls.

Incorporation can move quickly once documents are ready. Banking, immigration, regulatory approvals and getting operations running are separate tracks and often take longer.

11. What Changes in Your Budget Between the Two Structures

There is no single price for a UAE trading company. The free zone, activities, shareholders, visas, premises, approvals and ongoing compliance all move the number. The bigger difference is between a lean regular free zone setup and a designated-zone structure built to hold up a 0% claim:

We can prepare a written proposal for your specific route covering incorporation, visas, government charges, our fees and estimated yearly compliance costs.

12. Running the Company Without Moving to the UAE

Foreign nationals can usually own an eligible UAE trading company without living in the UAE. But company ownership, UAE residency, tax residence and bank approval are separate questions. If you manage the business from another country, check whether that creates tax residence, a permanent establishment or management-and-control exposure there. Banks may also ask for extra checks on non-resident owners or directors. Setting up in the UAE does not automatically change your personal tax position at home.

Where the business is run from matters too. If the owners make the key commercial decisions abroad, sign contracts abroad and hold board meetings abroad, another country may treat the company as managed there. Keeping a manager in the UAE, holding board meetings in the UAE and recording where decisions are made helps support the UAE position. It is worth agreeing these routines with your advisers before the first trade, not after a question arrives.

Common Mistakes We See with High-Seas Trading Companies

Most problems with these structures do not come from the tax law itself. They come from small set-up decisions that look harmless at the start:

• Licence activities that do not match the goods. Trading a product the licence does not cover, or one that needs a separate approval, can stop a bank payment or a customs clearance.
• Claiming 0% from a flexi-desk. Expecting qualifying status without people, decisions or premises in the zone is the most common reason a 0% position fails.
• Selling to the wrong customers. Sales to end consumers, or a growing share of UAE sales, can push revenue outside the qualifying rules and past the de minimis limit.
• Weak title documents. Without contracts, bills of lading and clear Incoterms, it is hard to show the UAE company ever owned the goods.
• Related-party margins with no support. Booking a large margin in the UAE without transfer pricing documentation invites challenge.
• Assuming no VAT applies. The VAT position depends on where the goods are and how the supply chain is contracted, not on the licence.
• Ignoring the buyer's country. Import licences, duties and local rules at the destination can delay or block a shipment, and your buyer will look to you.
• Overlooking sanctions and controlled goods. Banks screen every party, vessel and route. Dual-use or restricted goods need careful checks before any contract is signed.

13. How Avyanco Approaches This: Structure First, Licence Second

A trading company that works on paper but fails at the bank, or claims 0% tax it cannot defend, costs far more than it saves. So before we suggest a zone, we look at the trading model and the numbers. A high-turnover trader with strong margins may justify a designated-zone structure. A smaller merchant trader is often better off in a regular free zone under the standard regime. A business that needs real UAE sales may need a mainland company.

Avyanco Business Consultancy LLC supports clients across mainland and free zone jurisdictions with route selection, activity selection, incorporation, visas, bank applications and post-setup coordination, and through our accounting and tax teams, with Corporate Tax registration and returns, VAT assessment, bookkeeping, financial statements and audit coordination, depending on the engagement.

Bringing It Together

The UAE is a strong base for high seas sales and third-country trading: predictable Corporate Tax, a dollar-pegged currency, 0% UAE withholding tax, good banking and the logistics network trade relies on. The structure is what makes it work. Traders with solid qualifying profits and real operations in a designated zone may benefit from 0%. Smaller traders usually do better in a regular free zone under the standard regime. Businesses that need UAE customers are often best on the mainland.

The right structure balances tax efficiency, compliance and genuine commercial activity, so it still holds up when a bank, an auditor or the FTA looks closely.

Talk to Us About Your Trading Structure

Planning a high-seas, third-country, import-export or commodity trading company? Avyanco can compare the UAE routes against your actual trade, review the Corporate Tax position and give you a written plan. Book a consultation.