- February 20, 2023
- Posted by: Narender Kumar
- Category: Corporate Tax
The UAE became a Business tax-levying nation with the implementation of corporate tax, . Businesses need to assess their readiness for the new tax because it will become effective in the UAE on June 1st, 2023. Since they have been taking advantage of several tax breaks and incentives, businesses operating in all the UAE’s free zones will be more concerned about the impending corporation tax.
The free zone enterprises might benefit from the assistance of corporate tax consultants in Dubai in determining the possible effects of corporate tax on their operations. However, given that a new era of taxation is about to dawn on the UAE economic landscape, free zone enterprises should be aware of the major obstacles or advantages awaiting them.
In terms of the Corporate Tax Regime, who are Free Zone Persons?
Free zone businesses and branches established in any of the UAE’s free zones are referred to as “Free Zone Persons” in the UAE Corporate Tax Public Consultation Document.
Will businesses in free zones be subject to UAE corporate tax?
The UAE will impose corporate tax on Free Zone Persons. It implies that these people must fulfil their corporate tax duties in the UAE, including filing tax returns. Corporate tax consultants in Dubai can offer you more help with this.
Free Zone Individuals covered by the UAE Corporate Tax Law
Free Zones, also known as Free Trade Zones, enables single-window administration for the comfort of international investors and to advance world trade. In the United Arab Emirates, free zones are either near the ports or are industry specific. The UAE has traditionally been a center for international trade, and with the passage of the new Corporate Tax Law. The nation’s economy has become more closely tied to the entrepreneurial culture of the UAE community.
This part of the UAE Corporate Tax Code addresses the taxability of Free Zone Persons. A Free Zone Individual who fits the criteria is eligible for 0% Corporation Tax on their “Qualifying Income.”
Article 18: Qualifying Free Zone Individual as defined by UAE Corporate Tax Law
According to Article 18 of the Corporate Tax Law, if a Free Zone company has sufficient substance in the UAE, generates Qualifying Income, complies with UAE transfer pricing regulations and fulfills other conditions which UAE tax authority may prescribe it should be regarded as a Qualifying Free Zone Person (eligible for the 0% tax rate on qualifying income).
A legal or juridical entity that is a “Free Zone Person” is one that is:
- Established in the Free Zone.
- Founded in the Free Zone.
- Within the Free Zone registered.
It also includes a Non-Resident branch that is in a Free Zone.
A Free Zone Person must register and submit a Corporate Tax Return. Regardless of whether they are Qualifying Free Zone Persons or not.
Conditions that a Freezone Person must meet in order to qualify as a Freezone Person under the UAE CT Law.
According to Article 3(2)(a). of UAE Corporate tax law, a Free Zone Person who meets all the requirements to be a Qualifying Free Zone Person can receive benefit of 0% corporate tax on their Qualifying Income.
A person is consider as a Qualified Free Zone Person if they met all of the following requirements:
- Maintain Adequate Economic Substance in UAE. It needs to guarantee that the Free Zone has enough economic substance and presence in UAE.
- Qualifying Income – It should get qualifying income in accordance with the Cabinet decision which can include net income from international business.
- No Election Has Been Made: According to Article 19 of the UAE Corporate Tax Law, it has not made an election to be subject to the general Corporate Tax rules as stated in article 3(1) of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses
- Related party transactions – Freezone should comply with Articles 34. (Transfer Pricing Rules) and Article 55 (Maintaining Transfer Pricing Documentation) of the UAE Corporate Tax Law.
- Other conditions: Complies with any further demands the Minister may put forward.
When does a person no longer qualify as a person in a free zone?
According to the UAE Corporate Tax Law, anyone who does not meet the above requirements (described in Article 18 of the UAE CT Law) within a specific Tax Period will no longer qualify as a qualifying free zone person and hence, the special benefits to such free zone will not be allowed by the ministry
Minister may stipulate terms or circumstances.
The Minister may lay down the requirements and situations under which a Person:
- From a different date, cease to be a Qualifying Free Zone Person.
Corporate Tax Rates Apply to Qualifying Free Zone Persons
- Article 3 (2) – The following rates of corporate tax is applied to the taxable income:
a. 0% (zero percent) on qualifying income 9% (nine percent) on non-qualifying Income
Article 19: A Qualifying Free Zone Entity’s Election to Be Subject to Corporate Tax Under the UAE Corporate Tax Law
According to CT Law, a Qualifying Freezone Person may choose to be subject to Corporate Tax at the standard rates. It can choose to have its qualifying income regarded as taxable income, for example.
Effective Time: The decision will go into effect on one of the following dates:
- The start of the tax period during which the Qualifying Free Zone Person makes their choice.
- The start of the tax period follows the tax period during which their choice is form.
Conclusion
Corporate tax advisors in Dubai may be needed by free zone enterprises to help them understand complex tax principles and assure compliance. Look no farther than Shuraa Tax Consultants when it comes to selecting the top business tax advisors and tax agents in Dubai. You can get assistance from our team of knowledgeable company tax advisers as you get ready for corporate tax. Call or text us at +971 508912062 and +971 508912403 or send an email to info@shuraatax.com
