Impact of Corporate Tax on UAE Freezone Companies

incorporate tax in UAE

There are several benefits in setting up a business in free zones, most of which have to do with lower business setup in Dubai cost. Over the years, businesses in the free zone have been exempted from paying corporate taxes. However, recent changes in the UAE laws, Federal-Decree Law No. 47 of 2022, state that corporations, including free zone entities, are soon going to be taxable. According to this law, businesses are liable to pay corporate taxes at the start of the new fiscal year (on or after June 1, 2023).

How does this impact free zone businesses?

Since free zones play an essential role in the growth of the UAE’s economy, especially in attracting foreign investment, the government introduced special corporate tax rules in this regard. Generally, a free zone company, including those who opt to use the cheapest virtual office in Dubai, that earns qualifying income (a qualifying free zone person a.k.a. QFZP) is subject to 0% tax. A 9% corporate tax applies to non-qualifying income.

Who is qualified as a WFZP?

In order to be considered a qualified free zone person, you must meet the following requirements:

  • Have adequate workforce, assets, and income-generating activities are carried out in the UAE. Additionally, the business must be managed and controlled in the UAE. If your business does not require dedicated facilities for your day-to-day operations, consider renting an office in a business centre Dubai.
  • Your business should earn qualifying income. A qualifying income is any income derived by the FZP through transactions with businesses located within the same free zone, outside the UAE, or in any free zone in the UAE.
  • The business or entity has not made an election to opt out of the free zone tax regime.
  • Transfer pricing rules and documentation are met.

If the entity fails to meet the conditions stated above, it will be required to pay corporate taxes when the new financial year starts.

If you need legal advice or assistance in processing the requirements for setting up a business in the UAE, or you’re looking for flexi desk Dubai, feel free to reach out to our team at Austria Business Center.

Our experts offer a range of business solutions to meet all your business requirements. We also offer offices for rent and meeting rooms if you need a venue to meet with clients or conduct interviews.

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