UAE Corporate Tax Frequently Asked Questions (FAQs) for Free Zone Persons

The introduction of corporate tax in the UAE represents the country’s shift from a no-tax region to a tax-levying jurisdiction. As the UAE corporate tax will take effect from June 1st 2023, businesses need to check whether they are adequately prepared to embrace the new tax. Companies operating in all the UAE free zones will be more anxious about the upcoming corporate tax as they have been enjoying multiple tax incentives and benefits.

Corporate tax consultants in Dubai can help the free zone companies to assess the potential impact of corporate tax on their business. However, free zone businesses should understand the key challenges or benefits awaiting them as a new era of taxation is about to dawn upon the UAE business landscape.

We have created a list of Frequently Asked Questions (FAQs) that may help the free zone companies address their key corporate tax concerns. Read ahead to know further (Entities are advised to make any tax-related decision once the government releases the UAE Corporate Tax Law):

Corporate tax in the UAE

Most of the businesses in the UAE do not pay corporate tax, including free zone businesses. Certain businesses such as companies that extract natural resources have been subject to corporate tax at the emirate level. However, this will change from June 1st 2023 when the UAE corporate tax regime takes effect.

The UAE corporate tax rate will be 9% for businesses with a net income or a taxable income of AED 375,000 or more. The rate of corporate tax in the UAE will be 0% for businesses whose taxable income does not exceed AED 375,000. Corporate tax consultants in Dubai can further advise you on the corporate tax regime.

Who are Free Zone Persons as per the Corporate Tax Regime?

As per the UAE Corporate Tax Public Consultation Document, free zone companies and branches registered in any of the free zones in the UAE are termed as ‘Free Zone Persons’.

Will free zone companies be taxed under the UAE Corporate Tax?

Free Zone Persons will be subject to corporate tax in the UAE. It means such persons are required to fulfil their corporate tax obligations in the UAE including tax return filing. Corporate tax advisors in Dubai can assist you further on this matter.

Will Free Zone Persons lose the benefit of tax incentives?

The UAE corporate tax regime will continue to honour the benefits currently being enjoyed by Free Zone Persons. However, they must maintain adequate substance and comply with all regulatory requirements to enjoy such benefits.

Can a Free Zone Person enjoy the 0% corporate tax rate?

A Free Zone Person is entitled to a 0% corporate tax rate on income earned from transactions with businesses located outside of the UAE, or from trading with businesses located in the same of any other Free Zone. They can also benefit from a 0% corporate tax rate on income earned from certain regulated financial services directed at foreign markets.

What will be the tax rate for a Free Zone Person with a mainland branch?

If a Free Zone Person has a branch in the UAE mainland, it will be taxed at the regular corporate tax on its income derived from the mainland. However, it can continue to benefit from the 0% corporate tax rate on its free zone income, if books of account of the mainland and the free zone are separate. If no separate books then 9% on both free zones as well as mainland income.

What is the tax rate for Free Zone Persons trading with the mainland without a branch?

Free Zone Persons without a mainland branch may transact with companies operating in the mainland UAE. In such cases, the Free Zone Person can continue to enjoy the 0% corporate tax rate, provided its income from the UAE mainland is limited to ‘passive’ income. Passive income can be royalties, dividends and capital gains earned from owning shares in the UAE mainland companies.

How will the transactions with group companies be taxed?

The 0% corporate tax rate will apply to transactions between Free Zone Persons and their group companies located in the UAE mainland. However, payments made to a Free Zone Person by a mainland group company will not be treated as a deductible expense.

Related: A Guide to Non-Deductible Expenses Under UAE Corporate Tax

Can a Free Zone Person be disqualified from a 0% tax rate?

Any other income earned by a Free Zone Person from the mainland will disqualify it from the 0% corporate tax regime in respect of all their income. Consult with corporate tax consultants in Dubai to know if your mainland income will disqualify you from a 0% corporate tax rate.

Can a Free Zone Person elect the regular tax rate of 9%?

The UAE corporate tax regime allows a Free Zone Person to make an election to the regular corporate tax rate of 9% at any point in time. However, this will be an irrevocable election.

Will withholding tax apply to a Free Zone Person’s income?

If a Free Zone Person benefits from the 0% CT regime in respect of mainland sourced income, such income will be within the scope of withholding tax, It will be applied at the rate of 0%.

Detailed article: Applicability of Withholding Taxes Under the UAE Corporate Tax

Should a Free Zone Person submit audited financial statements?

A Free Zone Person is required to have audited financial statements to benefit from the 0% corporate tax regime. Corporate tax advisors in Dubai can help you with the audit of financial statements.

Consult with the Best Corporate Tax Consultants in Dubai, UAE

Free Zone businesses may require the assistance of corporate tax consultants in Dubai to comprehend complex tax concepts and ensure compliance. When it comes to hiring the best corporate tax advisors in Dubai, look no further than s Jitendra Chartered Accountants (JCA). We have an expert team of corporate tax consultants who can help you prepare for corporate tax. JCA’s corporate tax consulting services in Dubai cover CT Assessment & Advisory Services (one-time or retainer basis), CT Compliance Services & CT Agent Services to Represent to Federal Tax Authority (FTA) of UAE in case of any notices served by FTA. Ensure corporate tax compliance and avoid relevant penalties by availing of JCA’s corporate tax services in Dubai, UAE. Talk to our consultants for tax solutions that you can count on