Other BriefingsUAE Corporate Tax Incentives in Free Zones
The UAE allows qualified business entities to take advantage of a 0 percent corporate tax rate in free zones. We discuss the criteria.
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has provided detailed guidelines on how businesses in free zones can qualify for a 0 percent corporate tax rate on specific activities. This follows the introduction of a new law imposing a 9 percent corporate tax on companies earning over 375,000 dirhams, with exceptions for businesses operating in free zones.
Companies that were issued business licenses in the months of January or February (regardless of the year in which they were issued) will need to apply for CT registration before May 31, 2024, the nearest deadline. Businesses that fail to register within the set timeframes will be liable to a fine.
Eligibility criteria
To benefit from the 0 percent tax rate, a company must be recognized as a Qualifying Free Zone Person (QFZP). The requirements include:
- Maintaining audited financial statements.
- Demonstrating substantial business activity within the free zone (economic substance).
- Generating income from approved activities, with a cap on non-approved income. If non-approved income exceeds 5 million dirhams or 5 percent of total income, the company may lose the tax exemption entirely.
Also Read: Deadlines for Registering for UAE Corporate Tax – What Businesses Need to Know
Qualifying activities for corporate tax incentives in UAE free zones
The FTA has specified several activities that qualify for the tax exemption:
- High seas sales and export sales billed domestically.
- Cryptocurrency investments, considered under qualifying income rules.
- Commodity trading, including oil and gold, without requiring exchange listing.
- Processing goods, which encompasses more than just manufacturing.
- Distributing goods from other countries (third-country trading) without physically importing them into the UAE.
- Investing excess cash for personal use.
- Interest income from surplus funds does not qualify.
- Free zone holding companies without staff can meet the substance requirement through board decisions.
- Separate financial statements for qualifying and non-qualifying income are not required.
Registration deadlines
The FTA has updated the registration deadlines for corporate tax. Originally set for September 2025, the new deadlines are now scheduled across 2024. The first group of businesses must register by May 31, 2024, with all companies required to complete registration by December 31, 2024. Registration deadlines are based on the month a company’s license was issued, rather than the year.
In light of these new regulations, free zone businesses in the UAE should thoroughly review the FTA guidelines to ensure compliance and maximize the benefits of the 0 percent tax rate on qualifying activities.
