UAE CORPORATE TAX
(All you need to know)
A Designated Zone is a Free Zone that is recognized as a Designated Zone for UAE VAT purposes.
Qualifying Free Zone Persons can benefit from the 0% Corporate Tax rate on income derived from the wholesale distribution of goods or materials (i.e., not to the end consumer) from a Designated Zone to domestic and foreign businesses.
No. Only juridical persons can benefit from the Free Zone Corporate Tax regime. This includes any public or private joint stock company, limited liability company, limited liability partnership and other types of incorporated entities that are established under the rules and regulations of the Free Zone. A branch of a foreign or domestic juridical person that is registered in a Free Zone would also be considered a Free Zone Person.
A foreign company can become a Free Zone Person by transferring its place of incorporation to a UAE Free Zone and continue to exist as an entity incorporated or established in a Free Zone.
Yes. A foreign or mainland company that transfers its place of incorporation to a Free Zone and as a result becomes subject to the applicable laws and regulations of the Free Zone in the same manner as an entity that was incorporated in a Free Zone shall be considered a Free Zone Person.
A foreign company will not be considered a Free Zone Person solely on the basis of being considered a Resident Person for Corporate Tax purposes by virtue of being effectively managed and controlled in a Free Zone.
To benefit from the Free Zone Corporate Tax regime, a legal entity must be established or registered in one of the Free Zones eligible for the 0% Corporate Tax rate and meet the following criteria:
- maintain adequate substance in a Free Zone.
- derive Qualifying Income.
- not have made an election to be subject to the regular UAE Corporate Tax regime.
- comply with arm’s length principle and transfer pricing rules and documentation requirements.
- Prepare and maintain audited financial statements.
Yes. A Qualifying Free Zone Person that continues to meet all relevant conditions will automatically benefit from the Free Zone Corporate Tax regime. There is no need to make an election or submit an application to the Federal Tax Authority.
A Qualifying Free Zone Person that does not want to benefit from the Free Zone Corporate Tax regime can elect to apply the standard UAE Corporate Tax regime instead.
Yes. In addition to maintaining audited financial statements and adequate transfer pricing documentation, a Qualifying Free Zone Person will need to maintain all relevant documents and records to evidence its compliance with the conditions to be considered a Qualifying Free Zone Person. This includes documentation in relation to the substance maintained in a Free Zone and the types of activities performed and income earned.
Failure to meet one or more of the conditions will result in a disqualification from the Free Zone Corporate Tax regime for five (5) Tax Periods, starting from the beginning of the Tax Period in which any of the conditions are no longer met. During this period, the Free Zone Person will be subject to the standard UAE Corporate Tax regime on all its Taxable Income.
Earning non-Qualifying Income disqualifies a Qualifying Free Zone Person from the Free Zone Corporate Tax regime, unless the income is attributable to a domestic or foreign Permanent Establishment or is non-Qualifying Income earned from Immovable Property located in a Free Zone.
There are de minimis requirements that prevent a Qualifying Free Zone Person losing the benefit of the Free Zone Corporate Tax regime as a result of earning a small or incidental amount of non-Qualifying Income.
Yes. Qualifying Free Zone Persons must transact with their Related Parties and Connected Persons in the UAE and abroad on arm’s length terms and maintain appropriate transfer pricing and other supporting documentation. This requirement applies irrespective of whether the Related Party or Connected Person also benefits from the Free Zone Corporate Tax regime, is subject to the standard UAE Corporate Tax regime or is subject to the tax regime of a foreign country.
A Qualifying Free Zone Person must prepare and maintain adequate documentation to support the arm’s length pricing of transactions with related parties, in accordance with the Corporate Tax Law.
A Qualifying Free Zone Person that meets the conditions prescribed by the Ministerial Decision No. 97 of 2023 Requirements for Maintaining Transfer Pricing will also need to prepare and maintain a transfer pricing master file and local file.
Yes. A Qualifying Free Zone Person must prepare and maintain financial statements that are audited by an independent audit firm.
No. A Qualifying Free Zone Person cannot be a member of a Tax Group or be part of a Qualifying Group. A Qualifying Free Zone Person can also not transfer or receive Tax Losses or claim Small Business Relief or Business Restructuring Relief.
Yes. All Free Zone Persons will be required to register, obtain a Tax Registration Number, and file a Corporate Tax return, irrespective of whether they are a Qualifying Free Zone Person or not.