Tax regulation free zone in the UAE 2024
Free economic zones in the United Arab Emirates are unique platforms with special conditions for conducting business. Many companies choose UAE free zones to register their branches or subsidiaries, for relocation and business expansion. Free zones attract companies due to their development opportunities and tax incentives.
Federal Law No. 47 of 2022 on Corporate Taxation (Corporate Tax Law) establishes a favorable tax regime for qualified residents of the UAE free zones subject to certain conditions:
- The company maintains a proper level of substance in the UAE.
- The company generates qualified income.
- It does not opt to pay corporate tax as a regular taxpayer (a free zone resident may opt out of the special regime even if it meets all conditions).
- It adheres to arm's length principles in transactions with related parties and sometimes provides transfer pricing documentation.
- It complies with de minimis requirements, meaning the non-qualified revenue of a free zone resident should be at most 5 million dirhams or 5 percent of total revenue during the tax period.
- It prepares audited financial statements.
A qualified free zone resident failing to comply with any conditions loses its status. As a result, they will not be able to enjoy the benefits of the favorable tax regime for five tax periods.
MAIN CORPORATE TAX RATES
The following tax rates are set for qualified residents of free zones:
- 0% on qualified income.
- 9% on taxable income that is not qualified income (from the first dirham, not from 375 thousand dirhams as for regular companies).
- There are several entities exempted from taxation, including:
- Companies engaged in the exploitation of natural resources in the UAE.
- Government-owned companies and companies with government participation.
- Qualified investment funds, etc.
Regulators constantly establish new rules regarding various tax aspects. If you plan to register a business in UAE free zones, IT-OFFSHORE specialists will help assess the tax implications for your business and register with tax authorities.
