What is the Basic Tax Information That the Freezone Persons Should Be Aware Of?
The UAE made big tax changes in 2023. It added corporate tax rules that affect Free Zone businesses. Some of these businesses pay 0% tax, while others pay 9% when income goes over AED 375,000. This tax rule helps the UAE stay strong in business on a global level. Today, the UAE is a top business hub across 134 countries.
If you’re doing business in Free Zones, you should know the basic tax rules. Below, we explain the key points for Free Zone Persons. Read till the end and understand your tax duties in the Free Zones.
Who Are Free Zone Persons?
A Free Zone Person is a company or branch that’s set up in any UAE Free Zone. It must be a legal business, like a corporation. If a business sets up a branch in a Free Zone from outside the UAE or even from inside, it still counts. But a person can’t count as a Free Zone Person if they’re not part of a registered company. So, individuals or partnerships that aren’t registered won’t qualify.
Basic Tax Information That Free Zone Persons Should Be Aware Of
To enjoy the 0% corporate tax, Free Zone Persons must meet special rules. These rules help the UAE set high standards and follow fair global tax laws.
Here are the main things to know:
- The business must be active inside a Free Zone.
- It must make money through approved activities.
- It must not choose to pay the regular 9% tax.
- It must keep proper records and financial statements.
- It must follow the Arm’s Length Principle for fair pricing.
- It must meet the de minimis rule for excluded income.
If your business misses any rule, the tax will be 9%. That’s the same rate paid by companies outside Free Zones.
Qualifying Income and Qualifying Activities
A Free Zone Person with 0% tax status is called a Qualifying Free Zone Person (QFZP). This status depends on where your income comes from.
Qualifying income comes from:
- Deals with other Free Zone Persons.
- Owning or using intellectual property.
- Doing approved business work.
- Meeting the de minimis condition.
To count as a qualifying activity, your work should include:
- Manufacturing and processing goods.
- Running fund management services.
- Leasing or financing aircraft.
- Offering logistic services inside the Free Zone.
These activities help your business earn the 0% tax benefit if other conditions are also met.
Excluded Activities Related to Corporate Tax in The Free Zones
Some activities don’t qualify for 0% tax even in Free Zones. These are called excluded activities. If you do them, you pay 9% tax.
They include:
- Doing business with individuals (natural persons).
- Banking and insurance work.
- Owning or using real estate.
- Support work for excluded jobs.
So, even if you work inside a Free Zone, you must avoid these jobs to keep the 0% tax status.
Compliance Requirements
Free Zone businesses must meet the UAE’s tax rules. These rules protect your status and help avoid penalties.
Here’s what you must do:
- Register with the Federal Tax Authority (FTA).
- File tax returns on time every year.
- Keep business records and audit reports for 7 years.
- Track income and spending correctly.
- Stay within qualifying rules for each business activity.
All these steps help you stay safe from fines. You can hire experts from MFSCAS Auditing to help you with these steps. They’ll handle your tax setup while you grow your business.
What Can Help You From MFSCAS Auditing?
When the tax rules feel confusing, don’t worry. MFSCAS Auditing will guide you with trusted hands. We help you stay compliant in Free Zones and file your tax right. You’ll get full support with laws, records, and audits. We’ll handle the hard work while you focus on growth.
Let’s not beat around the bush—the early bird catches the worm. Act now to stay ahead.
- Visit our office at: Book Authority – Office D22 – Sharjah – United Arab Emirates
- Or contact/WhatsApp us at: +971 50 266 5348
