Who Needs to Register for Corporate Tax in Free Zones?

Written By Akshaya Ashok, Reviewed By Reyees K P

Published on 16/01/2025

The UAE has always been one of the leading business destinations in the world. The free zones within the country lure foreign investment and encourage the growth of the economy. Now that the corporate tax rules are there within the UAE, businesses who will be operating in the free zones get to see a new tax regulation under which they need to know about those that need to register under the corporate tax in free zones to guide themselves against penalties under the UAE tax laws. This is a guide that explains corporate tax regulations in free zones and who is supposed to register as well as the entire registration process to enable businesses to make the right decisions and remain compliant in the growing, rapid tax environment of the UAE.

Definition of Free Zones

Free zones, also known as free trade zones or free economic zones, are designated areas within the United Arab Emirates (UAE) that offer a number of benefits and incentives to businesses operating within them. These zones are designed to promote economic growth, attract foreign investment, and foster entrepreneurship by providing a business-friendly environment. benefits of operating in free zones include tax incentives, such as exemptions from corporate and personal income taxes, ease of doing business, streamlined licensing and regulatory procedures, 100% foreign ownership, and access to state-of-the-art infrastructure and logistics facilities. By operating in a free zone, businesses can take advantage of these benefits, increasing their competitiveness and profitability in the global market.

What is  Free Zone Corporate Tax Registration?

Free Zone Corporate Tax Registration refers to the process of registering a business operating in a free zone in the United Arab Emirates (UAE) for corporate tax purposes. This registration is mandatory for businesses that meet certain criteria, such as having a certain level of taxable income.

Free Zone Corporate Tax Registration involves providing the necessary documentation and information to the Federal Tax Authority (FTA) or the relevant free zone authority, and obtaining a Tax Registration Number (TRN). This registration is required to comply with the UAE's corporate tax laws and regulations.

Registered businesses will be required to file corporate tax returns, pay corporate tax on their taxable income, and comply with other tax-related obligations. Failure to register or comply with corporate tax laws can result in penalties, fines, and other consequences.

Entities Required to Register for Corporate Tax

• Businesses with Income from UAE

All businesses earning income within the UAE must register for corporate tax. This includes companies operating in various sectors, such as:

• Service Providers: Businesses offering services like consulting, IT, and hospitality.
• Manufacturers: Companies involved in producing goods and products.
• Retailers: Businesses selling products directly to consumers.
• Financial Institutions: Banks and financial service providers.

These entities must comply with the Federal Tax Authority (FTA) regulations, particularly if their taxable income exceeds AED 375,000.

• Foreign Companies Operating in UAE Free Zones
  

Criteria for Foreign Companies Needing to Register

Foreign companies that have a fixed presence in the UAE or operate within free zones are required to register for corporate tax. This includes:

• Branches of Foreign Companies: Any foreign entity with a branch in the UAE must register.
• Companies with Long-Term Contracts: Firms engaged in long-term contracts within the UAE are also obligated to register.
  
  

Difference Between Foreign and Local Businesses in Terms of Tax Obligations

While both foreign and local businesses must register for corporate tax, foreign companies may have different compliance requirements based on their operational structure and the nature of their income. For instance, foreign firms may need to maintain additional documentation to demonstrate compliance with local laws.

• Companies with Business Activities in Multiple Free Zones
  

Tax Registration Obligations

Companies operating across multiple free zones must register for corporate tax regardless of where their income is generated. This ensures compliance with the FTA regulations and allows businesses to declare their income accurately across different jurisdictions.

Entities that operate in multiple free zones should be aware that they may face varying tax obligations depending on the specific regulations of each zone. They must maintain comprehensive records and file annual tax returns within nine months of their financial year-end.

Types of Businesses Exempt from Corporate Tax Registration

In the UAE, certain businesses and entities are exempt from corporate tax registration under the new corporate tax regime. Key exemptions include:

• Businesses with Taxable Income Below AED 375,000: Entities earning less than AED 375,000 in taxable income are not subject to the 9% corporate tax, effectively resulting in a 0% tax rate. This exemption is designed to support small businesses and startups, encouraging economic growth.
• UAE Government and Government-Controlled Entities: These entities are exempt from corporate tax as long as they do not conduct business activities under a license issued by a relevant authority. This includes various government departments and public institutions.
• Extractive and Non-Extractive Natural Resource Businesses: Companies involved in the extraction of natural resources (like oil and gas) are subject to Emirate-level corporate tax instead of federal corporate tax. Non-extractive natural resource businesses may also qualify for exemptions if they meet specific criteria outlined in the Federal Decree-Law No. 47 of 2022.
• Qualifying Public Benefit Entities: Certain organizations that serve public interests may also be exempt from corporate tax.

Free Zones with Specific Tax Exemptions

Free zones in the UAE offer specific tax incentives to attract foreign investment. Many free zone entities qualify for a 0% corporate tax rate on qualifying income if they meet certain conditions, such as being classified as a "Qualifying Free Zone Person." Examples of such free zones include:

• Jebel Ali Free Zone (JAFZA)
• Dubai Multi Commodities Centre (DMCC)
• Abu Dhabi Global Market (ADGM)

These zones provide a business-friendly environment with additional benefits like full foreign ownership and exemption from import and export duties.

Compliance and Deadlines of Free Zone Corporate Tax Registration

• Registration Deadline: Businesses must register for corporate tax within six months of the end of their financial year. For example, companies with a financial year ending on December 31 must register by June 30 of the following year.
• Filing Deadlines: Annual tax returns must be filed within nine months after the end of the financial year, with payment due at that time.

Importance of Timely Registration to Avoid Penalties

Timely registration is crucial for businesses to avoid penalties and ensure compliance with UAE tax laws. Failure to register or file within the specified deadlines can result in significant fines, which can adversely affect business operations. Additionally, non-compliance may lead to increased scrutiny from the Federal Tax Authority (FTA), potentially resulting in further legal complications.

Process of Free Zone Corporate Tax Registration

Step-by-Step Guide on How to Register

• Log into the EmaraTax Portal: Access the EmaraTax platform using your credentials or UAE Pass. If you are a new user, create an account and verify your email.
• Navigate to Corporate Tax Registration: Select the option to register for corporate tax on the dashboard. Add your business entity first if no taxable entities are linked to your account.
• Provide Entity Details: Choose the appropriate entity type (e.g., free zone company) and enter details such as your trade license number and business activities.
• Add Business Owners: Include information about individuals or entities holding more than 25% ownership in the company.
• Contact Information: Provide your registered business address, phone number, and email address.
• Authorized Signatories: Specify who is authorized to sign on behalf of the business.
• Review and Submit: Carefully review all entered information for accuracy before submitting your application.
• Confirmation and Reference Number: After submission, you will receive a confirmation and a Tax Registration Number (TRN) once your application is processed, typically within 20 business days.
  
  

Documents and Requirements Needed for Registration in Free Zone

• Trade License: A copy of your valid trade license.
• Identification Documents: Copies of identification for all owners and authorized signatories (e.g., passports, Emirates IDs).
• Business Structure Details: Information regarding the legal structure of the business.
• Financial Records: For some businesses, maintaining comprehensive financial records, including audited statements, may be necessary to support tax filings.
  
  

Consequences of Failing to Register

Penalties for Non-Compliance

• Fines: Businesses that fail to register for corporate tax may incur significant fines imposed by the Federal Tax Authority (FTA). These penalties can vary based on the duration of non-compliance and other factors.
• Increased Scrutiny: Non-compliance may lead to increased scrutiny from tax authorities, resulting in audits or further investigations into the business's financial practices.
  
  

Impact on Business Operations

• Legal Consequences: Failing to comply with tax registration requirements can lead to legal repercussions, including potential restrictions on business operations or licenses being revoked.
• Financial Burden: Accumulated penalties and interest on unpaid taxes can create a substantial financial burden that may jeopardize the viability of the business.
• Reputation Damage: Non-compliance can harm a company's reputation, making it difficult to attract clients, partners, or investors who prefer working with compliant businesses.
  
  

Conclusion

Registering for corporate tax in free zones is for businesses operating in the UAE. As outlined in this guide, businesses that meet certain criteria, such as having a certain level of taxable income, must register for corporate tax. Failure to do so can result in penalties, fines, and other consequences.

To ensure compliance and avoid any issues, businesses operating in free zones are encouraged to seek the guidance of a qualified tax professional, such as Reyson Badger. With their expertise and knowledge of UAE tax laws and regulations, Reyson Badger can provide valuable assistance with corporate tax registration, compliance, and planning, helping businesses navigate the complexities of UAE taxation and ensure a smooth and compliant tax experience.

Written By

Akshaya Ashok

Akshaya Ashok is a content writer specializing in creating content focused on accounting and auditing. With over two years of experience, she has developed expertise in crafting professional content for the financial sector.