A strategic location, coupled with a business-friendly environment, has propelled Dubai into the modern metropolis it is today. This magnet for global companies owes much of its success to its diverse Free Zones. There are several Free zones in Dubai and each of it operates under its own set of rules and regulations. The several benefits provided in a Free Zone include 100% Foreign Ownership opportunities, fast and easy business set up procedures, easy access to regional and global markets & world-class infrastructure.
The UAE’s corporate tax rollout has caused a stir, particularly among businesses nestled in the previously tax-free havens of free zones. The burning question that has arisen is: are all free zones in the UAE eligible for the 0% rate of corporate tax? The answer is not a simple yes or no.
Qualifying freezone businesses are not subject to the AED 375,000 minimum threshold limit.
While the 0% tax rate holds immense appeal, not all free zones and activities qualify for this tax haven. As per the Federal Decree Law on Corporate Income Tax, only a Qualifying Free Zone Person (QFZP) is subject to the tax rate at 0% on its qualifying income. On their taxable income that does not meet the definition of qualifying income, tax rate would be 9%. Qualifying freezone businesses are not subject to the AED 375,000 minimum threshold limit.
Non-compliance with any of the above condition triggers the loss of the benefit not for five years, including the year in which such non-compliance occurs.
To understand the concept of QFZP, one should be equipped with the knowledge of the important terminologies used: Qualifying income, De-minimis rule and Non-Qualifying revenue.
It should receive Qualifying Income as is defined in the Cabinet’s decision made on the Minister’s recommendation.
Other income whereby the Qualifying Free Zone person fulfils the De-Minimis requirements.
The following incomes are categorized as Qualifying income as per Cabinet Decision No.55 of 2023:
Note:
A) The domestic PE and foreign PE of QFZP would be treated as a separate and independent person, who is related to QFZP. The income attributable to such PE’s shall be considered as Taxable Income and taxed at the rate of 9%.
B) Income attributable to immovable property located in a Free Zone derived from the Transactions with Non-Free Zone Persons in respect of Commercial Property; Transactions with any Person in respect of non-commercial immovable property shall be considered as Taxable Income and taxed at the rate of 9%.
The de-minimis rule sets a threshold for QFZP’s non-qualifying income which includes income from Excluded Activities and activities not considered as Qualifying when dealing with Non-Free Zone Persons, at 5% of their total revenue or AED 5 million, whichever is lower.
For computation of Total revenue and non-qualifying revenue , the income attributable to points mentioned under A & B in the Note above, shall not be included.
Non-qualifying revenue is revenue derived from excluded activities and activities that are not qualifying activities carried out by QFZP with Non Free Zone persons. Where,
Not all companies in the UAE are required to pay corporate tax. Learn more about the specific exemptions and regulations in this detailed guide.
Other income whereby the Qualifying Free Zone person fulfils the De-Minimis requirements.
Corporate Tax will be levied at a headline rate of 9% on Taxable Income exceeding AED 375,000. Taxable Income below this threshold will be subject to a 0% rate of Corporate Tax
UAE Corporate Tax applies to juridical persons incorporated in the UAE and to foreign juridical persons that are effectively managed and controlled in the UAE. A foreign juridical person that operates in the UAE through a Permanent Establishment or that has a taxable nexus in the UAE would also be subject to Corporate Tax.
Natural persons will be subject to Corporate Tax only if they are engaged in a Business or Business Activity in the UAE, either directly or through an Unincorporated Partnership or sole proprietorship. Cabinet Decision No. 49 of 2023 specifies further information on what would bring a natural person within the scope of UAE Corporate Tax.
Therefore it is very clear from the above that every business will be covered by corporate tax except for the specific exemption provided by the cabinet.okkeeping services. We ensure that proper chart of accounts are created before the start of accounting project and ensure that management gets the profit numbers at the tip of a button. Our USP is timely completion of bookkeeping which is as accepted internationally as we follow IFRS & GAAP.
Yes, Free Zones that are a qualifying free zone will get 0% corporate tax rate if the activities by a businessmen is categorized under qualifying business activity as per Ministerial Decision number 265 of 2023. It also covers few designated zone activities that may be taxed at 0% and a designated zone is same as Federal Decree-Law No. (8) of 2017 on Value Added Tax
When an individual invests in real estate within their financial means, it stays tax-free. Meaning investment income is not subject to corporate tax.
As per the Ministerial Decision No. 82/2023, all Taxable Persons deriving revenue exceeding AED50,000,000 (fifty million) during the relevant tax period, and all Qualifying Free Zone Person(s) (regardless of its Revenue) are required to prepare and maintain audited financial statements. In the case of all other Taxable Persons, the Federal Tax Authority can ask for financial statements from any Taxable Person.
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