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Are the Free Zones in the UAE Still Tax-Free

are the free zones in the uae still tax-free

For many years, the UAE’s free zones have been a magnet for investors and entrepreneurs, primarily due to the tax-free benefits they offer. However, recent developments have brought some changes to the landscape. The introduction of the UAE Corporate Tax, effective from June 2023, has raised questions about whether free zones are still tax-free havens.

Understanding Corporate Tax in UAE Free Zones

The UAE Corporate Tax law, announced by the Ministry of Finance, has introduced a 9% tax rate on business profits exceeding AED 375,000. This change affects companies operating within the UAE, including those in free zones. However, the situation is more nuanced for free zone entities.

According to the Federal Tax Authority, free zone companies can still enjoy tax-free status under certain conditions. The key is whether the company meets the definition of a “Qualifying Free Zone Person.” To qualify, the company must adhere to specific requirements, such as:

  • Maintaining adequate substance in the UAE.
  • Deriving qualifying income, which typically includes income from activities conducted within the free zone or with other free zone entities.
  • Not having opted to be subject to the standard corporate tax regime.

If these conditions are met, the entity can benefit from a 0% tax rate on qualifying income. However, any non-qualifying income, such as income earned from business activities outside the free zone, will be subject to the standard corporate tax rate.

Are Free Zones Still Attractive?

Despite the introduction of corporate tax, free zones remain attractive for many businesses. The possibility of a 0% tax rate on qualifying income is still a significant advantage, especially for companies primarily engaged in activities within the free zone or with other free zone entities.

Additionally, free zones offer other benefits, such as full foreign ownership, no customs duties on imports and exports, and streamlined processes for business setup and operations. These perks continue to make free zones a preferred choice for entrepreneurs looking to establish a presence in the UAE.

 

 

How Can Choose UAE Help

At Choose UAE, we understand the complexities of starting a business in the UAE. Whether you’re aiming to take advantage of the tax benefits in a free zone or looking for expert guidance on navigating the corporate tax landscape, our team is here to help. We offer comprehensive support, from obtaining your free zone license to ensuring compliance with the latest regulations. Let us assist you in making informed decisions and successfully launching your business in the UAE.

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