Corporate Tax in UAE: Things to Know for a Free Zone Company

Corporate Tax,Accounting,free zone corporate tax uae,UAE VAT


Corporate Tax in UAE: Things to Know for a Free Zone Company

In recent years, the United Arab Emirates (UAE) has developed into a significant global economic hub, luring investors and business owners from all over the world. One of the key factors luring companies to the UAE is its friendly tax environment. 

In this post, we will discuss the UAE’s tax system and analyze how the UAE corporate tax affects companies operating in free zones.

Corporate Tax in UAFree Zone Company

Overview of Corporate Taxes in the UAE

The UAE government has everything ready for the region’s firms to register for corporate tax. When compared to any of the European countries, the corporate tax rate in this nation is one of the lowest at 9%.

Companies, particularly those operating in free zones, profit greatly from this unique tax structure. 

Note: The UAE imposes a 9% corporate tax on all businesses with taxable profits of AED 375,000 or more. 

The Three Business Jurisdictions in the UAE for Corporate Tax

There are three main business jurisdictions in the UAE where businesses can be founded.

It is the Offshore, Free Zone, and Mainland. 

Out of the three business jurisdictions, offshore operates solely foreign firms and is therefore exempt from the Corporate Tax and VAT legislation. 

Regarding Mainland Companies, all organizations that satisfy the criteria are required to pay a 9% Corporate Tax on the profit they make from the UAE.

However, all businesses are required to maintain their books of accounts and audit reports in addition to registering for corporate tax. 

For free zone companies, there are a few ‘Qualifying Free Zone Person’ exemptions. Free Zone businesses are exempt from corporate tax in the UAE if they generate Qualifying Income and meet specific requirements. 

Free Zone Companies in the UAE

A free zone is a legally recognized and specified area within the state that is outlined in a decision made by the Cabinet at the Minister’s request. The UAE, emirates of Dubai, and Abu Dhabi are home to numerous Free Zones.

One of the main cornerstones of the UAE’s growth journey is the free zones.

The majority of UAE Free Zone Companies have been viewed as crucial drivers for international trade.

Free Zones are exempt from numerous taxes, including corporation tax, 100% returns on capital & earnings, 100% foreign ownership, and 100% customs and VAT exemptions.

Will Corporate Tax Affect Free Zones?

The UAE’s free zones enterprises will be affected by corporate tax. However, businesses operating in free zones that abide by regulatory rules and don’t do business in the mainland UAE would benefit from the UAE corporate tax benefits.

A Free Zone company’s income is divided into Qualifying and Non-Qualifying income.

Under the Federal Decree Law on Corporate Income Tax, a Qualifying Free Zone Person is required to pay corporate tax at the following rates:

  • On Qualifying Income, 0% (zero percent). 
  • On Taxable Income that is not Qualifying Income, there is a 9% (nine percent) tax.

The regulations of FTA specify and establish the precise qualifying income for a free zone person or a company.

Who is a Qualifying Free Zone Person

One who satisfies the requirements for a Free Zone Person under the Decree-Law and is subject to Corporate Tax with 0% taxable income is referred to as a Qualifying Free Zone Person.

Conditions for Qualifying Free Zone Person

According to Article 18 of the Corporate Tax Law, which outlines the prerequisites for becoming a “Qualifying Free Zone Person,” the following requirements must be met for the Free Zone Company to qualify as a “Qualifying Free Zone Person”:

  • Possess a permanent set-up in the UAE, including an office, staff, and major business operations.
  • Must earn Qualifying Income.
  • Not attempted to opt out of the Free Zone Tax system.
  • Documentation and transfer pricing regulations
  • A deal with companies based outside of the UAE
  • Trading with companies based in the same free zone or any other free zone
  • A few licensed financial services geared toward international markets
  • Sales of commodities by organizations based in VAT Designated Zones.

Conclusion

Companies operating in free zones in the UAE, such as those in Dubai, enjoy several tax benefits, including exemptions from corporate tax and other taxes, among others. 

However, the intricate tax system in the UAE can be challenging to understand and negotiate. As a result, tax consulting in Dubai is crucial for helping businesses with their tax-related problems.

Businesses can benefit from the services that tax consultants offer, including tax planning, compliance, and optimization. Businesses may ensure compliance with local tax laws, minimize tax payments, and concentrate on their core business operations by making use of the expertise of tax consultants in Dubai.

Book a consultation with the top tax consultant in Dubai now to ensure the success of your activities in the booming UAE market.

RSN Consultancy Accounting & bookkeeping firm

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