UAE Clarifies 0% Corporate Tax Benefits and Conditions for Free Zone Companies
The UAE Corporate Tax framework allows qualifying Free Zone businesses to benefit from a 0% tax rate on qualifying income, subject to specific eligibility criteria. Non-qualifying income is generally subject to 9% Corporate Tax.
The United Arab Emirates has established a special Corporate Tax framework for businesses operating in its Free Zones, allowing eligible entities to benefit from a 0% Corporate Tax rate on qualifying income.
Under the UAE Corporate Tax Law, a Qualifying Free Zone Person must meet specific requirements to retain this tax benefit. These include maintaining adequate substance in the Free Zone, earning qualifying income, complying with transfer pricing rules and maintaining audited financial statements.
The 0% rate may apply to qualifying transactions with other Free Zone Persons, specified business activities and income from qualifying intellectual property. However, income from excluded activities and certain permanent establishment or immovable property arrangements may be subject to the standard 9% Corporate Tax rate.
The framework identifies qualifying activities such as manufacturing, processing, logistics, distribution, reinsurance, fund management and certain services provided to related parties.
Businesses must also comply with their Corporate Tax registration, return filing and record-keeping obligations. Corporate Tax returns and any applicable tax payments are generally due within nine months following the end of the relevant tax period.
Failure to meet the qualifying conditions may result in the loss of Qualifying Free Zone Person status for the relevant tax period and the following four tax periods.
