On 9 December 2022, the UAE Ministry of Finance released Federal Decree-Law No. 47 of 2022 to introduce a new corporate tax regime in the UAE. The new UAE corporate Tax regime will be effective for accounting periods beginning or after 1 June 2023.
The corporate tax regime brings features that show the best practices in international taxation. However, there are some exceptions for businesses for corporate tax. in this blog, we are going to discuss the criteria of free zone persons under the UAE corporate tax law.
Free Zones, referred to as Free Trade Zones, are created to facilitate foreign investors while promoting global trade. Free zones in the UAE are industry specific or associated with ports. UAE has always been a hub for international business and after implementation of UAE corporate tax will grow the economy of UAE.
Taxability Of Free Zone Persons
A Free Zone is a designated geographical area that is specified on the basis of Ministry of Finance suggestions. The cabinet has the power to designate a particular area in the UAE as a Free Zone.
A free zone person is a legal or juridical person that is:
- Established in the Free Zone.
- Incorporated in the Free Zone.
- Registered in the Free Zone.
A free zone person, whether it is a qualifying free zone or not, is required to register for the corporate tax return and file for it also.
A free zone person that satisfies all the conditions of a qualifying person is eligible to pay a 0% UAE corporate tax rate. However, a person will be considered a qualifying Free Zone person, if he or she complies with these conditions:
- Maintain economic substance in UAE.
- No election made.
- Derives qualifying income.
- Complies with Articles 34 (transfer of pricing Rules) and 55 (maintaining transfer pricing documentation) of the UAE Corporate Tax Law.
- Complies with other additional requirements which may get imposed by the Minister.
Any person not fulfilling the conditions in a specific tax period will be ceased to be a qualifying free zone person from the start of the tax period under the UAE corporate law.
The Minister may specify the criteria under which a person can be ceased to be a qualifying free zone from a different date and may continue to be a Qualifying Free Zone Person.
Applicability Of Corporate Tax Rates For Qualifying Free Zone Person
A qualifying person is subject to Article 3(2)(a) of the Corporate Tax Law, 0% of the corporate tax incentives period in which the person is registered.
The period can be extended in accordance with any conditions which may be set in a decision by the Cabinet.
There is a limit on the maximum extension which must be noted that one period will not be more than 50 years.
It is quite important to know if you are a qualifying free zone person or not. If you are a Qualifying Free Zone Person, then you can avail of the 0% UAE corporate tax.
ebs is providing assistance in determining your eligibility for UAE corporate tax. Our expert team is available for customers to guide them about their business positions and taxation criteria in UAE. Feel free to consult our legal experts who will gladly guide you about UAE corporate tax.
Reach out to our accountants for a meaningful discussion on corporate tax and its regulations.