Corporate Tax application on Freezone companies

On 09 December 2022, the Ministry of Finance released Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. This law included the treatment of businesses on freezones as well as the mainland.

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Many freezone authorities in the UAE offer long periods of tax free benefits to attract entrepreneurs to set up their businesses there. However, with the announcement of the new law there are some conditions which are important to take into consideration.

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Qualifying Free Zone Person

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As per the corporate tax law, a Free Zone Person eligible meets all of the following conditions:

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• Maintains adequate substance in the State.
• Derives Qualifying Income
• Has not elected to be subject to Corporate Tax
• Complies with Transfer Pricing Rules and Transfer Pricing Documentation

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A Free Zone Person shall apply for the remainder of the tax incentive period, which may be extended, but any one period shall not exceed (50) fifty years.

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Qualifying Income

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Income earned by the entity must be qualified for tax free status which is defined by a decision issued by the Cabinet at the suggestion of the Minister.

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Rates

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Qualifying Free Zone Person

0% on qualifying income

9% on taxable income that is not qualifying income

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It is expected that freezone companies doing business in the mainland would be subject to corporation tax however more information is likely to be available once the cabinet announcements are made.

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