Free Zones UAE Corporate Tax – Introduction
Whether free zones are subject to UAE Corporate Tax Law is the big question.
The United Arab Emirates (UAE) announced early in 2022 the entry into force of a never before corporate tax in the country. The corporate tax will apply on business profits of subject companies for financial years starting on or after 1 June 2023.
In October 2022, Federal Decree-Law No. 47/2022 on the Taxation of Corporations and Businesses (UAE Corporate Tax Law) was released.
The most frequent question nowadays that June 2023 is just around the corner is: What do I do if we are a free zone company? Will I pay corporate tax in the UAE? Do I have to register? What are the most important dates to keep in mind?
We address them all in this publication.
Who will be subject to UAE Corporate Tax?[1]
The UAE Corporate Tax Law particularly addresses free zones. In summary:
- Free Zones are within the scope of the UAE Corporate Tax Law and subject to tax return filings.
- The UAE, however, will honour their tax incentives (free zones offer a free tax area) as long as free zone companies maintain adequate substance and comply with applicable regulations.
- Free Zones could have qualifying income and non-qualifying income.
- Qualifying income would be income coming from UAE mainland and that is passive: interest, royalties, dividends, capital gains from shares own in a mainland company. Transactions between free zones and their group companies in UAE will bear a 0% corporate tax but payments made to free zone entities by an entity of the group in mainland will be not a deductible expense. Proceeds our of sale of goods to UAE mainland businesses that act as importer of these goods will also benefit from a 0% tax rate. 0% will also be applied to sales out of the UAE or sales/services to companies located in the same free zone or other free zone entities.
- Non-qualifying income – any other mainland source income will disqualify a free zone from the 0% regime in respect of all their income.
It is interesting to note that the UAE Corporate Tax Law may be applicable to natural persons (individuals) who conduct business in the UAE. Legal insights directly point to influencers and media icons. The UAE Corporate Tax Law mentions that this application comprises sole establishments or proprietorships and individual partners in an unincorporated partnerships. It also indicates that whether an individual is engaged in a business that is subject to UAE corporate tax will depend on whether the activity requires such individual to obtain a commercial license or equivalent.
It is extremely important to note that the below will not be subject to the UAE corporate tax regime:
- Employment income
- Other personal income: dividends, rental receipts from UAE real estate investments. Even if UAE real estate and other investments are held through a private or family trust on behalf of beneficiaries that are individuals.
Which dates are important to keep in mind?
| Financial Year End | 30 June 2023 | 31 December 2023 | 31 March 2024 |
| First Tax Period | 1 July 2023-30 June 2024 | 1 January 2024 – 31 December 2024 | 1 April 2024 – 31 March 2025 |
| Payment Due Date – upon filing | 31 March 2025 | 30 September 2025 | 31 December 2025 |
Considering that Free Zones are subject to tax return filings, free zones will need to register for purposes of corporate tax. This should be undertaken as soon as possible in view of the upcoming deadlines.
To note that registration and deregistration is now mandatory for all companies established in the UAE and that Federal imposed accounting and bookkeeping obligations will now be strengthened as mechanism to verify the free zone entities qualifying and non-qualifying regimes.
How is corporate tax to be calculated?
Companies that are subject to UAE Corporate TAX will make the following payments:
For final taxable income between AED 0- AED 375,000 – Corporate tax at 0%
When the final taxable income exceeds AED 375,000 – Corporate tax at 9% for the difference between the final taxable income and AED 375,000.
We hope this post will help you understand the new tax obligations in the UAE and remain available for any questions regarding this post of general application. For those interested to reach the UAE Corporate Tax law you may access to it UAE Corporate Tax Law.
For more information published in English you can visit all our publications at this link as well as the videos in English of our Managing Partner Maria Rubert.
*The information on this page is not intended to be legal advice. This publication is intended to provide an initial introduction to the visa amendments in the UAE.
[1] https://www.mof.gov.ae/en/resourcesAndBudget/Pages/Corporate-Tax-Submission-Public-Consultation.aspx/