Corporate Tax for Free Zone

Radia Hammoulhadj
Tax Business Partner

It is advised that free zone businesses adequately prepare for the coming change in corporate tax law. Indeed, as they are not exempt from the new policy, it may directly affect income as of June 1, 2023. The government-issued Public Consultation Document provides guidance on relevant information for free zone businesses and is useful for those looking to improve their corporate tax readiness.

Corporate Tax Regime for Your Free Zone Business

How will the Incoming Tax affect your Free Zone Business?

As per the issued law, Qualifying Free Zone Businesses may continue to benefit from the Free Zone Corporate Tax regime, subjecting them to the 0% corporate tax rate on qualifying Income. However, the 9% corporate tax rate will be applicable to taxable income that does not meet the ‘qualifying Income’ requirement.

Conditions under which your Free Zone Business will be considered a Qualifying Free Zone Person:

  • Derive ‘Qualifying Income’, that should be defined in a later text,
  • Maintains adequate substance in the UAE:
    • Transactions occur between business and their group companies in mainland UAE
    • Business engages in transactions with businesses outside of the UAE, or within the same or another free zone
    • Businesses without mainland branches, earning ‘passive’ income and engaging in transactions with mainland UAE.
  • Not have made an election to be subject to Corporate Tax at the standard rates.
  • Complies with the transfer pricing requirements under the Corporate Tax Law.
  • Meets additional conditions that the Minister will prescribe later.

Each Free Zone entity will have to register and file a Corporate Tax return, whether the entity is a Qualifying Free Zone Person or not.

Benefits for Your Business to adequately prepare for the corporate tax

  • Benefit from UAE Tax holidays.
  • Identify gaps in your internal and external reporting.
  • Benefit from potential tax exemption. You may benefit from 0% corporate tax.
  • Ensure that your business appropriately gather ahd store data.
  • Ensure the quality of your documentation and data meet compliance requirements.
  • Improve risk-based and operational decision making relevant to tax matters as well as better preparation for future tax audit

How CTC Accounting Can Help You

CTC Accounting can guide your free zone business’s UAE corporate tax preparation. To make this transition as smooth as possible, it is necessary that you as a client are fully aware of the implications of the corporate tax law. It will help you avoid or better manage expenses, such as compliance cost burdens. CTC Accounting can offer advice relevant to all tax-related inquiries, as well as provide assistance with the following:

  • Auditing Financial Statements in accordance to IFRS
  • Improving the Quality of your Financial Documenting

For businesses looking to improve their UAE corporate tax readiness, avoid potential penalties, ensure their corporate tax compliance or fulfil any other tax or accounting related inquiries, CTC Accounting can provide valuable assistance. Contact us here.