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Corporate Tax Compliance for UAE Free Zone Businesses in 2024
As the UAE introduces Corporate Tax in 2024, free zone companies have an opportunity to benefit from a 0% Corporate Tax rate under certain conditions. Here’s a simplified guide to help free zone entities understand the essentials of complying with the new tax regime and maintaining their tax advantages.
Eligibility for a 0% Corporate Tax Rate
A Free Zone Person can qualify for a 0% tax rate on specific types of income, known as Qualifying Income, until the tax incentive period expires. To achieve this status, a Free Zone Person must:
- Generate Qualifying Income from approved transactions.
- Maintain substantial business operations within the UAE.
- Meet minimal revenue requirements from non-qualifying activities (de minimis requirements).
- Comply with transfer pricing rules and maintain required documentation.
- Prepare and keep audited financial statements as per the Corporate Tax Law.
What is Qualifying Income?
Qualifying Income, which is eligible for the 0% tax rate, includes:
- Income from dealings with other Free Zone companies, except for excluded activities.
- Income from transactions with Non-Free Zone businesses, provided these are part of approved activities.
- Other income that meets specific minimal criteria.
Note: Regular tax rates apply to any income that doesn’t meet these qualifications, including the standard 9% on income above AED 375,000.
Excluded Activities
Certain activities do not qualify for the 0% rate, including:
- Transactions with individuals, unless part of approved activities.
- Financial services like banking and insurance, unless specifically exempted.
- Dealing with UAE property or intellectual property, unless part of approved activities.
Qualifying Activities
Activities that can generate Qualifying Income when dealing with Non-Free Zone entities include:
- Manufacturing, processing, distribution, and logistics.
- Specific financial and management services regulated by UAE authorities.
- Services related to headquarters, treasury, and financing to related parties.
- Aircraft financing and leasing.
Maintaining Adequate Business Substance
To meet the substance requirements, businesses must conduct significant operational activities within their Free Zone. These can be performed directly or outsourced properly within the Free Zone.
For Free Zone companies in the UAE, understanding and preparing for the Corporate Tax in 2024 is crucial to leverage tax benefits. Ensuring compliance with the new regulations and aligning business activities with the qualifying criteria will help maintain the 0% Corporate Tax rate on eligible income. This strategic approach will enable Free Zone businesses to continue flourishing under the UAE’s new tax framework.
How Can Choose UAE Help
Starting in 2024, UAE free zone companies can qualify for a 0% Corporate Tax rate on certain incomes by meeting specific criteria such as generating approved income and maintaining substantial operations. Choose UAE assists businesses in navigating these new regulations through expert guidance on business structuring, compliance with documentation standards, and strategic planning, ensuring that companies optimize their tax benefits under the UAE’s new tax framework. Contact us to make your business corporate tax registered.
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