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The UAE has emerged as one of the most attractive places in the Middle East for free zone companies. As UAE corporate tax is new to everyone, you may be wondering what the UAE corporate tax rate is, how it affects your business, and whether it makes sense to establish a presence there. It is advisable to consult with free zone corporate tax consultants in Dubai, UAE, to know about corporate tax in detail. In this blog, we'll discuss the applicability of corporate tax in Dubai, UAE, to free zone companies.
Corporate tax on free zone companies: In the UAE, the tax treatment of companies and branches registered in free zones are referred to as "Free Zone Persons.". Free zone persons will be subject to corporate taxation in the UAE. It implies they'll have to file company tax returns in the UAE and comply with other administrative obligations. As long as Free Zone Persons maintain adequate substance and comply with all regulatory requirements, the UAE corporate tax regime will continue to offer tax incentives to them.
Corporate tax on mainland branches: Incorporated companies in free zones may have branches on the UAE mainland. Companies with mainland-sourced income will be subject to the standard corporate tax rate of 9%. However, the 0% corporate tax rate still applies to all other income.
Even though UAE companies operating in the free zones will be subject to the new federal tax regime and will be required to register and file a CT return, there will be no change regarding their eligibility for free zone corporate tax "holidays" or the 0% corporate tax rate. Trades with businesses outside the UAE, or trade with businesses in another free zone or the same, allow free zone people to benefit from the 0% corporate tax rate. Certain regulated financial services directed at foreign markets will also be subject to the 0% corporate tax rate.
There will be a requirement for the companies operating in the free zones to maintain adequate substance and comply with all government regulations. As part of maintaining adequate substance, the UAE needs to meet the requirements of the Economic Substance Regulations (ESR), including adequate manpower, assets, and income-generating activities. Additionally, the entity must be based in the UAE and managed there.
There are still several questions to be answered, including what qualifies as Qualifying Income (subject to Cabinet approval), how group entities located in mainland UAE should be treated for transactions, and if the decision to be subject to regular corporate tax is irrevocable.
Businesses operating within the free zones in the UAE must comply with certain administrative requirements to qualify for the 0% corporate tax rate. Free zone companies must provide audited financial statements in order to qualify for the 0% tax rate. Tax advisors in Dubai can help free zone businesses take advantage of the free zone corporate tax rate by auditing their books. Professional auditing firms can also provide assistance in understanding which deductions are available and in preparing complex tax forms. Reyson Badger, one of the top accounting firms in Dubai can help you with this. With experienced professionals, we help to ensure that all necessary documents and records are in place, providing the necessary assurance that the company is compliant with the regulations and that a correct assessment of taxes is being made.