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Application of Corporate Tax UAE on Free zone entities

The UAE corporate tax is applicable to all taxable persons. However, income accrued from state entities, social security funds, activities involved in extracting or non-extraction of natural resources, private pension institutions, public welfare institutions, and qualifying free zone persons is exempted. Tax Consultants Dubai assist taxable persons to establish their tax presence and stay compliant with the Federal Tax Authority’s regulations and standards.  

The impact of UAE corporate tax on free zones

Legal entities that are incorporated or registered in a free zone are referred to as free zone persons. Qualifying free zone persons will be exempted from UAE corporate tax. 

Classifications of qualifying free zone person

For taxable persons to qualify as qualifying free zone persons, the following should be met:

  •  The taxable person has to have operations in the UAE, generate income and have an adequate workforce. Also, the company should be run and controlled in the UAE.
  • The company must generate a qualifying income.
  • The organization has not chosen to leave the free zone tax regime.
  • The requirements for documentation and transfer pricing are met.

Standard corporate tax rates should be applied beginning with the fiscal year in which the business failed to comply with the requirements or chose to exit the free zone tax system if any of the aforementioned conditions are not met.

Read more: Exemptions under Corporate Tax Law, UAE

A qualifying income under Corporate Tax Law

The free zone person’s revenue from transactions with businesses based outside the United Arab Emirates, inside the same free zone, or in any other free zone inside the UAE is qualified income. No passive revenue received from other than the free zone i.e. mainland, the standard taxation rate will be imposed.  Nonetheless, a 0% rate will apply to the remaining income.

Tax Rate on Passive Income

The tax rate on passive income from holding shares, royalties, or capital gains from investments in mainland enterprises will be zero percent. 

Seek expert consultation from tax consultants UAE

Essentially, Tax Consultants in UAE assist taxable persons to establish their tax presence and to stay compliant with the Federal Tax Authority’s regulations and standards. Therefore, contact us today and we shall be happy to assist you.   

Mostafa is a qualified Corporate Tax Consultant with over 5 years of experience gained in diverse intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He has vast experience in reviewing and drafting tax documents. Mostafa has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlining tax complexities. Read more