UAE's FTA Issues Guide on 0% Corporate Tax for Free Zone Persons

The Federal Tax Authority (FTA) of the UAE has released a comprehensive guide detailing the application of Corporate Tax to Free Zone Persons. The guide provides clear criteria for Qualifying Free Zone Persons (QFZPs) to benefit from a 0% Corporate Tax rate on qualifying income under specific conditions.

The guide's release has significant implications for businesses operating in the UAE's free zones, as it provides clarity on the application of Corporate Tax and offers a competitive advantage to Qualifying Free Zone Persons. This could lead to increased investment and economic growth in the region, which would also create a more attractive business environment for international companies.

Key highlights of the guide include the criteria for becoming a QFZP, which encompass six specific requirements: registration, financial statement preparation, auditing, tax return submission, payment, and record maintenance. These requirements ensure that QFZPs adhere to the necessary regulatory framework to qualify for the 0% tax rate.

Revenue earned by a QFZP is categorized into various segments, such as out-of-scope, exempt, standard-rated (9%), total revenue, non-qualifying revenue, and qualifying revenue. The guide emphasizes the importance of adequate substance requirements for QFZPs conducting qualifying activities within the free zone or designated zone.

Additionally, QFZPs engaged in research and development (R&D) to produce qualifying intellectual property (QIP) can benefit from a 0% tax rate on the qualifying income derived from the QIP. This provision aims to encourage innovation and development within the UAE’s free zones.

The guide also provides definitions for immovable and commercial property, with revenue generated from immovable property taxed at the standard rate of 9% and not included in the de minimis calculation. This ensures clarity in the treatment of different types of income for tax purposes.

The FTA highlighted the significance of free zones in the UAE economy, noting that they drive economic growth and transformation both domestically and internationally. Free zones offer businesses various benefits, including relaxed foreign ownership restrictions, streamlined administrative procedures, modern infrastructure, and additional legal entity forms and commercial activities.

The guide is divided into 11 sections, covering topics including the criteria for becoming a QFZP, calculating Corporate Tax for QFZPs, adequate substance requirements, and the definitions for immovable and commercial property. It also addresses the treatment of income from R&D and QIP, and clarifies the beneficial recipient criteria for transactions with other free zone persons to qualify for zero-rated status.

The Corporate Tax implementing decisions and guides, including this new guide on Free Zone Persons, are available on the FTA's website. Businesses operating in the UAE's free zones are encouraged to review the guide in its entirety to understand the definitions and interactions of different rules.

Overall, the guide provides vital information for Free Zone Persons in the UAE to understand the application of Corporate Tax and benefit from the 0% Corporate Tax rate on qualifying income.

Key Takeaways

• UAE's Federal Tax Authority releases guide on Corporate Tax for Free Zone Persons.
• Qualifying Free Zone Persons (QFZPs) can benefit from 0% Corporate Tax rate on qualifying income.
• QFZPs must meet 6 criteria: registration, financial statements, auditing, tax return submission, payment, and record maintenance.
• Revenue from R&D and qualifying intellectual property (QIP) is eligible for 0% tax rate.
• Guide provides clarity on Corporate Tax application and benefits for Free Zone Persons in the UAE.