Liable Incomes on Corporate Tax in Dubai

The UAE introduced a 9% corporate tax in June, but businesses operating in free zones have special rules. A 0% corporate tax rate in Dubai provides substantial benefits to businesses that are operating in free zones. The framework of corporate tax in Dubai is distinctive and advantageous, providing companies with substantial benefits.

Qualifying for 0% Tax in Free Zones

There is 0% corporate tax in free zones, but companies need to qualify as Qualifying Free Zone Persons (QFZP). To achieve this, their income must be classified as Qualifying Income under the UAE's corporate tax law.

• Free zone businesses with Qualifying Income pay 0% corporate tax.
• A company that does not meet the Qualifying Income criteria is taxed at 9% and loses its QFZP status.

What is Qualifying Income?

Qualifying Income is any income earned by a QFZP that qualifies for the 0% tax rate. This income must come from business activities or transactions that are considered qualifying within the specific free zone.

Criteria to Determine Qualifying Income

A few factors we determine if someone qualifies for certain income benefits in a free zone:

• If they make money from doing business with other folks in the free zone, except for certain types of activities that don't count.
• If they earn money from doing business with people outside the free zone, but only for activities that count.
• Any other money they make that meets certain small amount requirements.

We consider income as coming from transactions with someone in the free zone if that person actually benefits from the stuff or services being bought.

Now, who exactly counts as someone who benefits?

Beneficial recipients enjoy what is purchased without being obliged to pass it on to someone else.

In addition, we verify if the person in the free zone has a permanent business setup in the country. Then anyone from outside the country can be considered a member of the free zone.

Qualifying Income for Domestic or Foreign Permanent Establishment

Business operations in the free zone are subject to 9% corporate tax in Dubai. Qualifying Free Zone individuals' income is considered taxable income.

Income earned by a Qualifying Free Zone Person through a Domestic or Foreign Permanent Establishment will be treated as belonging to an independent entity related to the Qualifying Free Zone Person.

The qualifying income for immovable property located in a free zone

Income derived from transactions involving immovable property located in a Free Zone is considered taxable income and is taxed as follows:

• Transactions with Non-Free Zone Persons involving Commercial Property.
• Immovable property transactions with any individual other than a commercial property owner.

The taxable income from these transactions for a specific tax period is the income payable to the immovable property calculated based on the relevant provisions of the Corporate Tax Law.

At Reyson Badger, we're the experts in tax consulting, especially when it comes to Corporate Tax Law. We'll keep you posted on all the latest changes regarding Corporate Tax in Free Zones. With our team of FTA Approved Corporate Tax consultants in the UAE, we provide a complete solution for Free Zones. We can help you ensure your income qualifies for 0% corporate tax in Dubai, as well as meet all the requirements.