Free Zone persons fall within the scope of the UAE corporate tax regime. They are required to carry out UAE Corporate Tax registration and file tax returns. However, subject to certain conditions, eligible free zone persons can benefit from the 0% corporate tax rate on qualifying income.
We have prepared a list of frequently asked questions to help Free Zone Persons (FZPs) ensure compliance with corporate tax:
1. What is a Free Zone Person?
A Free Zone Person is a juridical person incorporated, registered or established in a UAE Free Zone. The branch of a Non-Resident Person registered in a Free Zone is also treated as a Free Zone Person under the UAE Corporate Tax Law.
2. What is a Qualifying Free Zone Person (QFZP)
A QFZP is a juridical person incorporated in a UAE free zone, which is eligible for 0% corporate tax rate on its qualifying income, under specific conditions.
3. What are the conditions to be a Qualifying Free Zone Person?
An FZP becomes eligible for QFZP status when it meets certain conditions:
- The FZP must maintain adequate substance in the Free Zone
- The FZP must derive qualifying income
- The FZP must not have elected to be subject to the standard corporate tax rate of 9%
- The FZP must ensure compliance with the arm’s length principle for all transactions with Related Parties and Connected Persons.
- The FZP must maintain audited financial statements
- The FZP must ensure its non-qualifying Revenue does not exceed the lower of AED 5 million or 5%
4. What is considered “Qualifying Income”?
The income that makes an FZP eligible for the 0% tax rate is called the Qualifying Income. Income generated from the following sources are considered Qualifying Income under the UAE corporate tax regime:
- Transactions with other FZPs where those FZPs are the beneficial recipients and the transactions are not related to Excluded Activities.
- Transactions related to Qualifying Activities that are not Excluded Activities
- Income derived from the ownership or exploitation of Qualifying Intellectual Property,
- Any other income that meets the de minimis requirements
5. Are Free Zone Persons required to register and file a corporate tax return?
Yes, tax registration with the Federal Tax Authority (FTA) via the EmaraTax portal is mandatory for all Free Zone Persons, including QFZPs, regardless of whether any tax is due. A corporate tax return must be filed within nine months of the end of the relevant financial year. Failure to register on time may result in penalties.
How Tax Gian can Help You?
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