FREE ZONE PERSONS
Free zones play an important part of UAE’s economy and makes a significant role in encouraging foreign direct investment. Many free zones in the UAE offer various incentives including tax-free periods of up to 50 years. The Public Consultation document issued by the MoF in May, 2022 outlines the following treatment for various business transactions by free zone companies.
Free Zone Persons (FZP): Companies and branches registered in a Free Zone. They are within the scope of UAE CT and subject to tax return filing requirements.
The table below gives the tax treatment of income earned from the following transactions
|Transaction by a FZP:||Tax rate on relevant income|
|1. With Business located outside UAE||0%|
|2. Within the same free zone||0%|
|3. With a business in another free zone||0%|
|4. Having a branch in mainland||9% on income sourced from mainland and 0% on remaining income.|
|5. Not having branch in mainland but earns other passive income from mainland like interest, royalties, dividends & capital gains||0%|
|6. With group companies in mainland||0% provided payment made by mainland group company to FZP is not a deductible expense for the mainland company.|
|7. Located in a Designated Zone as per VAT , sells goods to mainland customer who is the importer on records||0%|
|8. With respect to regulated financial services directed at foreign markets||0%|
Conditions required to benefit from 0% tax rate
• Prove economic substance.
• Comply with all regulatory requirements.
Any other mainland sourced income will disqualify a FZP from the 0% regime in respect of all their income. Thus ensuring a neutrality with the businesses established in the mainland.