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What is the Corporate Tax Law for Freezone in UAE?

The United Arab Emirates (UAE) published the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (hence referred to as the "UAE Corporate Tax Law") on December 9, 2022. A Federal Corporate Tax (often known as a "UAE Corporate Tax") will be implemented in the UAE on or after June 1 2023, under the provisions of the Corporate Tax Law, which provides the legal foundation for such an effort. In the UAE, firms will soon be subject to a 9% corporation tax system starting in the middle of 2023, thanks to a mechanism that has already begun counting down. The tax rate, introduced last year, assures that the UAE has one of the lowest Corporate Tax regimes in the world, giving extra advantages to firms already established here and those who wish to move here and start-up. The UAE wants to speed up its growth and transformation by introducing the UAE Corporate Tax to assist it in accomplishing its strategic goals. With its vast network of double tax treaties, the UAE will solidify its position as a top business and investment location by guaranteeing a competitive corporate tax environment that complies with international norms.

What is UAE Corporate Tax?

The net income of companies and other enterprises is subject to a direct Tax known as corporate Tax. The term "corporate tax" may also be used in other countries to refer to "corporate income tax" or "business profits tax."

To Whom Does the UAE Corporate Tax Apply?

In general, the following "Taxable Persons" are subject to corporate taxes:

  1. UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE; natural persons (individuals) who conduct a business or other activity in the UAE as specified in a Cabinet Decision to be issued in due course;
  2. Non-resident juridical persons (foreign legal entities) that have a permanent establishment in the UAE.

As "Taxable Persons," judicial entities incorporated in a UAE Free Zone fall within the corporate Tax's purview and must adhere to its regulations. But a Free Zone Person who satisfies the criteria to be regarded as a Qualifying Free Zone Person may profit from a Corporate Tax rate of 0% on their Qualifying Income (the conditions are included in Section 14).

A 0% withholding tax may apply to non-residents who don't have a permanent establishment in the UAE or who receive revenue from a country that isn't connected to one. A kind of corporate Tax known as withholding Tax is a source tax remitted by the payer to the income recipient. Many tax systems include withholding taxes, which often apply to the international payment of dividends, interest, royalties, and other forms of revenue.

UAE Corporate Tax Rate

1. The following UAE Corporate Tax rates shall be applied to the Taxable Income for corporate tax purposes:

a) 0% on the percentage of the Taxable Income that does not exceed the limit outlined in an order made by the Cabinet on a Minister's recommendation.

b) A rate of 9% on Taxable Income is higher than the cap set out in a decision made by the Cabinet on the Minister's recommendation.

2. A Qualifying Free Zone Personis subject to the following UAE Corporate Tax rates of Corporate Tax:

a) A 0% deduction from Qualifying Income.

b) 9% of Taxable Income that is not Qualifying Income as defined in Article 18 of this Decree-Law, and any decision made by the Cabinet at the Minister's advice.

Read More: Corporate Tax in UAE : All You Need to Know

Qualifying Free Zone Person 

Free zone businesses eagerly await the ministry's direction on who is eligible for the 0% regime and who is not. On the website of the Ministry of Finance, an entity has to meet specific criteria to be considered a "qualifying free zone person," including:

a) Maintains good substance in the State.

b) Derives Qualifying Income as specified in a decision issued by the Cabinet at the suggestion of the Minister.

c) Has not elected to be subject to Corporate Tax under the Corporate Law.

d) Complies with transfer Pricing Requirements of the Corporate Tax Law.

e) Meets any other conditions as may be prescribed by the Minister.

According to the UAE Ministry of Finance's currently available guideline, "the qualifying income should include offshore as well as onshore sources of income of free zone residents subject to severe criteria," As a result, comprehensive instructions on this subject should be forthcoming. According to the UAE Corporate Tax Law, individuals who do not have an onshore basis but who transact with businesses in the UAE may get a tax rate reduction of 0% when doing business with such companies under certain circumstances. "Passive income" is one possible component of this revenue. In other words, Qualifying free zone persons, or free zone entities, who satisfy the requirements to benefit from the free zone Corporate Tax regime, will be required to pay at the following rates:

  • 0% of the applicable Income;
  • 9% of taxable Income does not satisfy the qualified income criterion.

"Businesses must consider the application of any new, significant law and develop an effective change management strategy."

What Can Farahat & Co. Do for You?

As a reputable corporate tax consultant in Dubai, we have a staff of highly qualified tax consultants with extensive experience in tax law advisory. Local and Dubai visitors can rely on our Tax Consultants for sage advice and the most recent details on corporate Tax in UAE. However, our corporate tax consultant in Dubai takes care of the needs of companies doing business in the UAE, whether they are regionally or internationally. Get in touch with us right away if you want more information from our tax consultants in Dubai, United Arab Emirates, about corporate tax exemption.

Read More : How Will Individuals Be Subject to Corporate Tax in the UAE?

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.