UAE Corporate Tax and Free Zone Persons: What You Need to Know
Qualification as Free Zone Persons
In the UAE, a Free Zone Person is anyone conducting business in a Free Zone. However, to be a qualified Free Zone Person, several conditions must be met: maintaining sufficient substance in the UAE, earning “Qualifying Income” as specified by the Cabinet Decision, complying with transfer pricing rules, and not electing to pay the full corporate tax. The Minister may introduce additional conditions, so it’s advisable to check the Ministry of Finance website regularly for updates.
Qualifying Income and Corporate Tax Rates
The UAE corporate tax regime imposes a 0% corporate tax (CT) rate on qualifying income and a 9% CT rate on other taxable income for Qualifying Free Zone Persons. The specific criteria for qualifying income will be detailed in a forthcoming Cabinet Decision. Free zones offer numerous advantages, such as full company ownership, confidentiality of assets, exemption from trade barriers and import duties, and streamlined business setup processes.
Registration, Filing, and Tax Rates
Free Zone entities must register with the Federal Tax Authority (FTA) and file corporate tax returns, even if they do not qualify for the 0% tax rate. Qualifying Free Zone Persons benefit from a 0% tax rate on qualifying income and a 9% rate on other taxable income. Entities with mainland branches are subject to a 9% rate on mainland income but can enjoy the 0% rate on Free Zone income if they maintain separate accounts. Transactions with mainland companies are taxed at a 0% rate if they generate passive income. Failure to meet the qualifying conditions will result in disqualification from the 0% rate, and Free Zone Persons can elect to pay the 9% rate, which may be irreversible. Additionally, withholding tax applies at a 0% rate, and audited financial statements must be submitted with corporate tax returns. Global minimum tax rules are not yet included in the UAE regime but may affect Qualifying Free Zone entities in large multinational groups in the future.
