HOW UAE FREE ZONE FIRMS CAN CAPITALISE ON 0% CORPORATE TAX

Qualifying income and substance requirements key to qualify for exemption

- BY SUNIL SINGH

Free zones are vital to the UAE economy, driving growth both domestically and internationally. These zones offer businesses significant advantages including relaxed foreign ownership rules, simplified administrative procedures, modern infrastructure, developed business communities, and additional legal entity options.

The introduction of corporate tax in the UAE represented a major change. While aligning with global standards, the law was designed to preserve the attractiveness of free zones, both designated and non-designated.

Standard corporate tax in the UAE is 9 per cent on taxable income exceeding Dh375,000. However, corporate tax rules allow qualifying free zone companies to benefit from a 0 per cent tax rate on certain qualifying activities and transactions.

HOW IT WORKS

The Corporate Tax Law applies this 0 per cent rate to the qualifying income of a qualifying free zone person (QFZP) from transactions with other free zone persons and specific activities performed within a free zone.

Each free zone operates under its own authority with unique local regulations. These authorities oversee business establishment, including legal entities and branches, and manage trade licences for activities conducted in or from the free zone.

The 0 per cent corporate tax rate applies for the remainder of the tax incentive period as specified in the legislation of the free zone where the QFZP is registered.