Federal Tax Authority Releases Corporate Tax Guide For Free Zone Entities

The Federal Tax Authority (FTA) has released a comprehensive guide detailing the application of Corporate Tax to Free Zone Persons under the Free Zone Corporate Tax regime. This regime allows Qualifying Free Zone Persons to benefit from a 0% Corporate Tax rate on Qualifying Income.

The guide provides general guidance on the application of the Corporate Tax Law to Free Zone Persons. It outlines the conditions required for a Free Zone Person to be considered a Qualifying Free Zone Person and benefit from the 0% Corporate Tax rate. Additionally, it specifies the activities that are deemed Qualifying Activities and Excluded Activities for a Qualifying Free Zone Person.

The guide includes numerous examples to help businesses understand how the key elements of the Corporate Tax Law apply to Free Zone Persons. It explains the calculation of Corporate Tax for Free Zone Persons, determination of Qualifying Income, and determination of taxable income subject to the 9% Corporate Tax rate.

Maintaining Adequate Substance

The guide outlines the conditions for maintaining adequate substance for Qualifying Free Zone Persons. It also details the criteria for determining a Foreign Permanent Establishment or a Domestic Permanent Establishment.

Income Treatment

Furthermore, the guide clarifies the treatment of income derived from immovable property and income derived from Qualifying Intellectual Property. It includes a detailed explanation of Qualifying Activities, Excluded Activities, and compliance requirements.

Permanent Establishments

The FTA added that if a Qualifying Free Zone Person operates through a Permanent Establishment in the UAE (outside the Free Zones) or in a foreign country, the profits attributable to such Permanent Establishment will be subject to the 9% Corporate Tax rate.

Role of Free Zones

The FTA highlighted that Free Zones are an integral part of the UAE economy, playing a critical role in driving economic growth and transformation both domestically and internationally. They offer businesses various benefits such as relaxed foreign ownership restrictions, streamlined administrative procedures, modern infrastructure, developed business communities, and additional legal entity forms and commercial activities.

The FTA has urged all Free Zone Persons to read the guide in its entirety for a complete understanding of the definitions and interactions of different rules. The Corporate Tax implementing decisions and guides, including this new guide on Free Zone Persons, are available on the FTA’s website.

With inputs from WAM