Understanding Qualifying Free Zone Person & Group in UAE Corporate Tax
The UAE government brings new rules for business tax. Every business in the country must know these tax laws. The new Corporate Tax (CT) law started in June 2023. This law follows world standards for tax. Some businesses are taxed, while others may be exempt or treated as Qualifying Free Zone Persons or Qualifying Groups. Let’s learn what these mean.
Qualifying Free Zone Person: Who Fits This Term?
A Qualifying Free Zone Person (QFZP) is a person or company set up in a UAE free zone. Many people open businesses in free zones for benefits like tax breaks and easy rules. But, not everyone in a free zone gets the special 0% tax. The UAE law says a QFZP must:
- Register in a free zone with a license from the free zone authority
- Do real business in the UAE, not just on paper
- Keep a real office, workers, and operations in the free zone
- Earn “qualifying income” that follows Cabinet rules
- Keep records and follow transfer pricing rules
- Not opt out of the free zone tax regime
If a QFZP breaks these rules, they lose the 0% tax and pay 9% tax instead. Even if you’re a QFZP, you must register and file a tax return every year.
What is Qualifying Income for a Free Zone Person?
Qualifying income is the money a free zone business makes from special activities. This can include:
- Selling goods or giving services to companies outside the UAE
- Selling goods or giving services to other businesses in the same or a different free zone
- Other activities that the Cabinet lists
If a QFZP sells to the UAE mainland, that income is usually taxed at 9%. You need to keep your records clear to show which money is “qualifying income.”
What is a Qualifying Group?
A Qualifying Group is a group of companies joined by common owners. This group acts as one taxpayer. This makes tax easier for the group. A Qualifying Group must:
- Have one business that owns at least 75% of the others (direct or indirect)
- Not include exempt businesses or QFZPs
- Use the same financial year and accounting rules
- Include only companies that live in the UAE or have a real business place in the UAE
Advantages of a Qualifying Group:
- You file one tax return for the group.
- You can move assets between group companies at book value with no extra tax.
- You save time and money on tax work.
Example:
If Company X owns 100% of Company Z and 20% of Company Y, but Company Z owns 80% of Company Y, then X can form a group with Y and Z.
Why Do These Rules Matter for UAE Businesses?
- The UAE wants to help real businesses, not fake “paper” companies.
- Businesses must have real offices and staff in the free zone.
- Qualifying income gets 0% tax, but non-qualifying income gets 9%.
- Every free zone business must register and report their income every year.
- These rules help UAE follow world tax standards.
Bullet Points: Key Facts
- Qualifying Free Zone Persons need to do business in a real way, not just on paper.
- Only qualifying income gets the 0% tax.
- Groups with 75% ownership can file as one taxpayer.
- All companies must keep good records.
- All companies must register and file yearly tax returns.
How MAK Auditing Can Support You
Mubarak Al Ketbi (MAK) Auditing knows UAE tax rules. Our team helps you register, file tax returns, and keep records. We guide you to follow all rules and get tax benefits for your business. If you need help with qualifying as a free zone person or group, don’t miss the boat—let MAK Auditing lead the way!
For more information:
- Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Contact/WhatsApp: +971 50 276 2132
