Corporate Tax Benefits for Free Zone in the UAE

Written By Akshaya Ashok, Reviewed By Reyees K P

Published on 05/02/2025

The United Arab Emirates (UAE) is changing its tax rules. Starting in 2023, all businesses, even those in Free Zones, must follow the new Corporate Tax law. Free Zone businesses need to understand this tax change. It can affect how well they do financially and how they compete. In this blog, we’ll talk about the benefits of Corporate Tax and some strategies for Free Zone companies. We'll help you make sense of the new tax rules and find ways to grow your business.

What are Free Zones in the UAE?

Free Zones are designated areas in the United Arab Emirates (UAE) that offer businesses a unique set of advantages and incentives to operate within a specific geographic area. The primary purpose of Free Zones is to promote economic growth, attract foreign investment, and foster innovation and entrepreneurship in the UAE.

Types of Free Zones

The UAE is home to over 40 Free Zones, each with its own unique characteristics and focus areas. These Free Zones can be broadly categorized into:

1. Industry-specific Free Zones: These Free Zones cater to specific industries, such as:

• Dubai Internet City (technology and IT)
• Dubai Media City (media and broadcasting)
• Jebel Ali Free Zone (logistics and manufacturing)
  
  

2. Geographic distinctions: Free Zones are also distinguished by their geographic location, such as:

• Dubai Free Zones (e.g., Dubai Airport Free Zone, Dubai Silicon Oasis)
• Abu Dhabi Free Zone (e.g., Abu Dhabi Airport Free Zone, Masdar City)
• Sharjah Free Zones (e.g., Sharjah Airport International Free Zone, Hamriyah Free Zone)

Reasons to Start Your Business in UAE Free Zone

Establishing a business in a Free Zone comes with several benefits, such as:

• 100% foreign ownership: Free Zones allow foreign investors to own 100% of their business, without the need for a local partner.
• Simplified business setup process: Free Zones offer a streamlined and efficient business setup process, with minimal bureaucracy and paperwork.
• Strategic location and infrastructure: Free Zones are often located near major airports, seaports, and transportation hubs, providing easy access to global markets and a world-class infrastructure.
• Tax exemptions and incentives: Free Zones offer various tax exemptions and incentives, such as zero or reduced corporate tax rates, to attract businesses and promote economic growth.

What are Corporate Tax Benefits for Free Zone Businesses?

Free Zone businesses in the UAE can enjoy numerous Corporate Tax benefits, exemptions, and incentives that can help minimize their tax liability and maximize their profits.

Exemptions and Incentives

Some of the key Corporate Tax benefits for Free Zone businesses include:

• Zero or Reduced Corporate Tax rates: Free Zone businesses may be eligible for a zero or reduced Corporate Tax rate, depending on the specific Free Zone and the business's qualifying activities.
• Exemption on profits derived from qualifying activities: Profits derived from qualifying activities, such as trading, manufacturing, or providing services, may be exempt from Corporate Tax.

Additional Tax Advantages

In addition to the exemptions and incentives mentioned above, Free Zone businesses may also enjoy the following tax advantages:

• No withholding tax on dividends and interest: Dividends and interest paid by Free Zone businesses to their shareholders or lenders may be exempt from withholding tax.
• VAT benefits: Eligible transactions conducted by Free Zone businesses may be zero-rated for VAT purposes, reducing the VAT burden on these businesses.
• Full repatriation of profits and capital: Free Zone businesses can repatriate their profits and capital without any restrictions or taxes.

Who is Eligible for Free Zone Corporate Tax Benefits?

To be eligible for Free Zone Corporate Tax benefits, businesses must meet specific eligibility criteria and maintain compliance with various requirements.

Eligibility Criteria

The following eligibility criteria must be met:

• Licensing requirements: Businesses must obtain the necessary licenses and permits to operate in a Free Zone. These licenses are specific to each Free Zone and may vary depending on the business activity.
• Qualifying activities: Businesses must engage in qualifying activities as defined by the Federal Tax Authority (FTA). These activities may include trading, manufacturing, or providing services.
• Free Zone Registration: Businesses must register with the relevant Free Zone authority and obtain a registration certificate.

Maintaining Compliance

To maintain eligibility for Corporate Tax benefits, businesses must adhere to the following requirements:

• Operational requirements: Businesses must comply with operational requirements, such as substance regulations, which ensure that businesses have a genuine presence in the UAE.
• Reporting and filing obligations: Businesses must meet their reporting and filing obligations under the Corporate Tax regime, including submitting corporate tax returns and paying any due tax.
• Record-keeping requirements: Businesses must maintain accurate and complete records, including financial statements, tax returns, and other relevant documents.
  
  

How do Free Zone Businesses Benefit in Practice? 

Real-Life Benefits of Free Zone Corporate Tax Incentives

In practice, Free Zone businesses can significantly benefit from Corporate Tax incentives, as demonstrated by the following real-life examples:

Example 1: Technology Startup in Dubai Silicon Oasis

A technology startup in Dubai Silicon Oasis leveraged the Free Zone's Corporate Tax incentives to reduce its tax liability. By taking advantage of the zero percent Corporate Tax rate, the startup saved AED 500,000 in taxes, which it reinvested in research and development.

Example 2: Logistics Company in Jebel Ali Free Zone

A logistics company in the Jebel Ali Free Zone benefited from the Free Zone's strategic location and infrastructure. By operating in the Free Zone, the company reduced its logistics costs and improved its supply chain efficiency. Additionally, it took advantage of the Corporate Tax incentives, saving AED 200,000 in taxes.

Tax-Saving Strategies and Operational Advantages

These examples illustrate the tax-saving strategies and operational advantages that Free Zone businesses can leverage:

• Zero percent Corporate Tax rate: Free Zone businesses can take advantage of a zero percent Corporate Tax rate, reducing their tax liability.
• Strategic Location and Infrastructure: Free Zones offer a strategic location and world-class infrastructure, reducing logistics costs and improving supply chain efficiency.
• Simplified Regulations and Procedures: Free Zones have simplified regulations and procedures, making it easier for businesses to set up and operate.

Lessons Learned

New and existing businesses in Free Zones can learn from these examples:

• Understand the Corporate Tax incentives: Businesses should understand the Corporate Tax incentives available in the Free Zone and how to leverage them.
• Take Advantage of the Strategic Location and Infrastructure: Businesses should take advantage of the Free Zone's strategic location and infrastructure to reduce logistics costs and improve supply chain efficiency.
• Simplify Regulations and Procedures: Businesses should simplify their regulations and procedures to reduce complexity and improve efficiency.
  
  
  

What are the Next Steps for Free Zone Businesses?

As a Free Zone business, it's essential to take proactive steps to navigate the Corporate Tax regime and maximize its benefits. In this section, we'll outline the next steps to take and provide recommendations for tax strategy and compliance best practices.

• Conduct a Tax Impact Assessment

The first step is to conduct a tax impact assessment to understand how the Corporate Tax regime will affect your business. This assessment will help you identify potential tax savings, risks, and opportunities. By engaging with tax experts, you'll be able to assess the impact of the Corporate Tax regime on your business and develop a tailored tax strategy.

• Engage with Tax Consultants to Optimize Benefits

To optimize the benefits of the Corporate Tax regime, it's crucial to engage with tax consultants who have expertise in UAE tax law. They can help you navigate the complexities of the regime, identify tax-saving opportunities, and ensure compliance with all tax laws and regulations. By working with tax consultants, you can ensure that your business is taking advantage of all available tax benefits.

• Regularly Update Financial Systems

To maintain compliance with the Corporate Tax regime, it's essential to update your financial systems regularly. This includes ensuring that your accounting records are accurate and up-to-date and that you're using the correct tax codes and rates. By regularly updating your financial systems, you'll be able to ensure that your business is meeting all its tax obligations.

• Stay Informed on Evolving Regulations

Finally, it's crucial to stay informed on evolving regulations and changes to the Corporate Tax regime. This includes monitoring updates from the Federal Tax Authority (FTA) and other government agencies, as well as attending seminars and workshops to stay up-to-date on the latest developments. By staying informed, you'll be able to ensure that your business is compliant with all tax laws and regulations and that you're taking advantage of all available tax benefits.

Conclusion

Businesses in the UAE's free zones have some great tax benefits. For instance, they enjoy a 0% corporate tax rate on certain income. This can boost profits. These free zones allow 100% foreign ownership and have easier rules to follow. It's key for businesses to make the most of these perks. But dealing with corporate tax rules can get tricky.

That's why it’s a good idea to talk with experts who can help. They can provide the right tax advice for each business's needs. People like Reyson Badger can offer helpful tips and strategies. This way, businesses can follow the laws and improve their tax situation.

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.