In December 2022, UAE’s Ministry of Finance announced a new Corporate Tax which will take effect starting June 1st, 2023. While, The UAE hosts many free zone areas which have always been a huge incentive for international corporations to set up their business operations. Entities in the free zone benefit from tax exemptions and many other economic benefits.
When the new Corporate Tax law was introduced in the UAE, businesses in the free zone began to question how it will impact their profits and operations.
So, without any more delay, in this post we are going to discuss whether Corporate Tax applies to free zone entities and if so, at what rates.
Corporate Tax for Business in the Free Zone
The Federal Corporate Tax Law will include business in the free zone. As such, all business in the free zone will have to register and file a Corporate Tax return. However, the Ministry of Finance made it clear that business in the free zone will still be able to benefit from special tax regulations that welcomed many foreign investors over the years given that their income is not derived from the mainland in UAE.
What UAE Corporate Tax rates apply to business established in a Free Zone?
The Federal Corporate Tax Law applies to all business entities in the UAE. Similarly, business in the free zone will be subject to Corporate Tax as well. However, Free zone entities can benefit from a 0% Corporate Tax rate on Qualifying Income. On the other hand, business in the free zone will be subject to a 9% Corporate Tax Rate on any income that doesn’t meet the Qualifying Income definition.
A 0% Corporate Tax rate is automatically applicable for Qualifying Free Zone business on their Qualifying Income. At the same time, business in the Free Zone can choose to be subject to the standard rate of Corporate Tax at 9%.
What is a Qualifying Free Zone Person?
To be able to benefit from a 0% UAE Corporate Tax Rate on Qualifying Income, the business has to meet certain criteria to be defined as a “Qualifying Free Zone Person”. The Ministry of Finance has yet to set clear conditions for a Qualifying Free Zone Person’s income to be defined as “Qualifying Income” but has provided the following criteria for an entity to be defined as a Qualifying Free Zone Person:
- Maintaining adequate substance in the State.
- Deriving Qualifying Income as specified in a decision that is yet to be issued by the Minister.
- The entity did not select to be subject to Corporate Tax.
- Any other conditions yet to be prescribed by the Minister
Why AM Audit?
Filing taxes while running a business is already hard enough. So, when a new Tax is introduced, it is even more stressful to make sure all your company’s paperwork is done right. So, why not leave it to the professionals?
At AM Audit, we take pride in our quality, speed, and transparency. Stop overthinking, don’t leave your business’s paperwork to chance and choose from many of Am Audit’s services including Auditing, Accounting, Consulting, and Corporate Tax Services.
