On this page, we provide you with the most important information you need to know about taxes on free zone companies in the United Arab Emirates.
How are taxes applied to free zone companies?
Taxes are applied to free zone companies that generate qualifying income at a rate of 0%, while free zone companies that do not generate qualifying income are taxed at a rate of 9%, without taking into account whether their income is more or less than the amount of (375,000) dirhams.
The Corporate Tax Law requires businesses operating in free zones, whether generating or not qualifying income, to register for corporate tax within the specified deadlines for previously established companies, and within (3) months from the date of establishment of new companies.
What are the qualifying income requirements?
- Qualifying income must be generated from relevant transactions, such as transactions with other persons based in the free zone, or transactions with local or foreign persons not based in the free zone, in relation to qualifying activities that are not excluded activities.
- That the company maintains a realistic and sufficient presence in the country.
- To meet the minimum requirements after its non-qualifying revenues exceed the value of less than the amount of (5,000,000) dirhams, or 5% of its total revenues.
- That you have chosen not to be subject to the entire corporate tax regime.
- To comply with transfer pricing requirements and document retention rules.
- Have its financial statements audited and kept for corporate tax purposes.
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Excluded activities not included in qualifying income
- Transactions with natural persons, unless they are transactions related to qualifying activities.
- Banking, financing, insurance and leasing activities subject to regulatory oversight by the competent authority in the country.
- Real estate ownership and exploitation activities, with the exception of commercial real estate located in free zones, provided that transactions related to it are conducted with other persons located in the free zone.
- Activities of owning or exploiting intellectual property.
When can free zone companies choose to be subject to the standard corporate tax rate?
Qualified companies based in free zones are subject to corporate tax either voluntarily or by default.
- A qualified person based in the free zone may elect to be subject to corporate tax at the standard rates. This election shall take effect either from the beginning of the tax period in which the election is made, or from the beginning of the tax period following that tax period (four subsequent tax periods).
- Also, if a person residing in the free zone does not meet the qualifying income requirements at any given time during a tax period, he loses his eligibility for tax at 0% from the beginning of that period and is subject to tax at the basic rates.
Obligations imposed on free zone companies after tax registration
After registering for the corporate tax system, companies based in free zones are subject to the following tax obligations:
- Submit tax returns within nine months of the end of the tax period.
- Pay the tax due within thirty days from the date of filing the tax returns.
- Keeping accounting records for a period of (7) years from the end date of the relevant tax period.
Request advice from an authorized tax agent.
As one of the leading tax consulting firms in Dubai, we have a team of qualified tax consultants with the most important practical certifications and experts in the UAE’s tax laws.
Our tax consultants can be relied upon to provide tax advice on corporate tax in the UAE .
Contact us now and benefit from a free assessment of your company’s zero-rated tax status. Benefit from our extensive experience in managing business tax matters. Our specialized consultants will help you navigate all corporate tax compliance requirements in accordance with best tax practices.
Research and Studies Department
Farahat & Co.
Dubai, United Arab Emirates
For service inquiries:
WhatsApp (correspondence only): +971526922588
Email: sales@farahatco.com
