- October 25, 2024
- Posted by: admin
- Category: Blog

The UAE is renowned as an international financial hub and a business center in the Middle East, delivering a remarkable score of advantages to companies and foreign investors. Historically, one of the most appealing things is the free zone regime as it features a zero tax on profits gained in the nation, barring several cases. However, it is vital to understand the UAE corporate tax implications of free zone companies and businesses running in the UAE.
Understand the New UAE Corporate Tax
For non-qualifying free zone persons, UAE corporate tax is applied at a rate of 9% of yearly taxable earnings exceeding AED 375,000. However, corporations within sanctioned free zones stay free from making payments zero percent tax on qualifying income as long as the terms the tax authorities apply on them are met. Non-qualifying income for qualifying free zone persons is taxed at 9 percent.
The UAE recently hasn’t imposed a federal corporate tax on companies. However, individual emirates can execute their own municipal taxes. It is vital to remain updated on any modifications in the tax conditions as the government of the UAE may introduce new taxes in the future.
Free zone companies in the UAE relish the remarkable tax benefit of being free from corporate tax. This exemption applies to local and overseas companies running within the decided free zone locations. The 05 corporate tax regime is a prime incentive for companies looking to establish and run a business in this country.
Qualifying Free Zone Person
The new UAE corporate tax rule attempts to strike the appropriate balance between free zone officials honoring their corporate tax-exempt position. Hence, a class of Qualifying free zone persons – a corporation registered in a free zone will be formed under the Corporate Tax Law. It permits corporations registered in a free zone to sustain their tax exemption on their Qualifying earning for the decided duration specified in free zone law. The cabinet can expand this duration to around 50 years under the corporation tax code.
A free zone person is a legal person or juridical who is –
- Incorporated in the free zone
- Formed in the free zone
- Registered in the free zone
The consideration also directs to a branch of a non-resident company registered in the free zone.
A person would be known as a Qualified free zone person in case they fulfilled all the needs mentioned below –
- Sustain sufficient economic substance in the UAE
- Derived Qualifying income as highlighted in a decision formed by the Cabinet.
- Has not been selected to be subject to the corporate tax at common rates.
- Adheres to the transfer pricing needs said under the new corporate tax law of the UAE.
UAE Corporate Tax Implications
While free zone corporations benefit from no corporate tax, there are still certain corporate tax implications to think about –
1. Tax Residency – The UAE tax residency of a corporation determines its tax duties. Corporations formed in the UAE are usually concerned with tax citizens. However, corporations integrated outside the UAE may also be subject to UAE corporate tax in case they fulfill certain standards, like having a permanent formation in the UAE.
2. Branch Offices – Overseas companies running in the UAE through branch offices may be subject to the UAE corporate tax on their branch revenues. The taxability of branch profits is based on a number of aspects, including the nature of activities of the brand, and the extent of its functions in the country.
3. Service Contracts – Corporations delivering services to entities in the country may be subject to UAE corporate tax if the services are considered to be performed within the country. The taxability of service agreements is based on aspects like the place of execution and the nature of the services delivered.
4. Transfer Pricing – Multinational companies with associated units in the UAE have to adhere to transfer pricing regulations. Transfer pricing confirms that transactions between associated groups are operated at arm’s length costs. Loss to adhere to transfer pricing rules and cause tax fines.
5. VAT – The UAE executed a VAT in 2018. While VAT isn’t a direct tax on company revenue, it can affect a company’s whole tax burden. Companies registered for VAT are needed to gather and remit VAT to the tax officials.
Other Benefits for Free Zone Businesses
Apart from no corporate tax, there are a number of free zone business benefits, including –
1. Complete Foreign Ownership – Foreign investors can hold complete ownership of a free zone company.
2. No Restrictions on Currency Exchange – Free zone corporations can freely repatriate their earnings.
3. Simplified Customs Processes – Free zone corporations leverage simple customs strategies and decrease import and export duties.
Confirming tax compliance UAE is vital for companies running in the UAE. Companies need to sustain precise statements, file tax returns timely, and adhere to all applicable tax rules. Failure to adhere to tax rules can cause fines and interest charges.
TaskmasterGulf is a major professional service provider in UAE, delivering a broad array of services, comprising tax compliance, audit, accounting, and business loan consultation. Our team of specialists can help companies understand and comply with the complicated corporate tax rules in the United Arab Emirates.
Final Words
While free zone companies in the UAE leverage zero corporate tax, it is vital to comprehend the wider corporate tax implications. By being knowledgeable of the tax residency rules, transfer pricing rules, and other appropriate aspects, companies can confirm their tax adherence and optimize their tax status in the UAE. Seeking expert suggestions from skilled specialists like Taskmastergulf can be invaluable in handling the complications of the UAE’s corporate tax terrain.
Also read: Advantages of Partnering with a Commercial Broker in Dubai