Are all Freezone companies exempted from corporate tax in UAE?

This has been a top question, since the time the UAE Government announced the introduction of

Corporate Tax from 1st June 2023. It is confirmed in the Public Consultation Document that “Tax

incentives” would be granted to Free Zone companies though the Consultation document clarifies

that certain business profits would still be taxed at the regular CT rate of 9%.

As per the proposed UAE corporate tax law, a 9% corporate tax will be imposed on annual taxable

income exceeding AED 375,000 and a 0% tax will be imposed on taxable income not exceeding AED

375,000.

When Freezone Companies will be eligible for 0% Corporate Tax

• Income earned from transactions with businesses outside of the UAE
• Income from transactions with businesses located in the same Free Zone.
• Income earned on transactions with businesses located in any other Free Zone.
• Income from the sale of goods by Free Zone companies located in Designated Zones to UAE mainland businesses that are importers of those goods.
• Income from transactions between Free Zone companies and their group entities located in mainland UAE. However, the associated payments made by mainland entities will not be deductible for UAE CT purposes.
• Income earned from transactions between Free Zone Persons and their group companies located in the UAE mainland. 
• If their mainland-sourced income is limited to ‘passive’ income. Income like interest, royalties, dividends, and capital gains from owning shares in mainland UAE companies.

When Free zone Companies will be imposed of 9% Corporate Tax?

• When Freezone company is transacting with Mainland company in UAE.
• The standard rate of 9% will apply to the mainland sourced income of the free zone with a mainland branch in UAE.

Will free zone companies fall within the scope of Corporate Tax in the UAE?

As per the Public Consultation document, Free zone companies will fall under the scope of Corporate

Tax. However, the UAE Corporate Tax regime will honor the Tax Incentives currently being offered to

the Free Zone Entities if it satisfies the following two conditions:

• If such entities maintain the adequate substance in the Free Zone and
• If it complies with all regulatory requirements.

Whilst Free zone companies might benefit from 0% Corporate Tax, they would be required to

comply with all the regulatory requirements. Freezone companies will have to register for CT,

file tax returns annually, maintain adequate substance and comply with all the necessary

requirements.

Is it mandatory to get the financial statements/ books of accounts audited?

Freezone company must have audited financial statements if they want to benefit from the 0%

CT regime.

It is always recommended to get the books of accounts audited to have a clean record to be able

to comply with any law relating to the financials and also to understand the profit or loss and the

the financial position of the business.

How can we help?

Flying Colour Tax Consultants can help companies to assess whether the business will fall under the

scope of Corporate Tax, help in preparing the books of accounts and financial records, Tax

registration, Tax Filing, and Annual Audit Assistance.

Even though the Corporate Tax is effective from the financial year starting in 2023, businesses

would need to assess now before expanding if their business in UAE Mainland or Free zone

would lead to any Tax benefit. Entities operating in free zones will need to assess whether they need

to segregate their free zone and mainland activities in order to take advantage of the 0% CT rate. 

FlyingColour specializes in assisting clients with cost-effective, high-quality services. We create

value by working closely with our clients to provide a one-stop-shop solution for all their business

needs.

To learn more about Freezone Company and Corporate Tax Eligibility, book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.