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The Federal Tax Authority (FTA) has issued a guide outlining the
application of Corporate Tax to Free Zone Persons in line with the Free Zone Corporate Tax regime, which enables Qualifying
Free Zone Persons to benefit from a 0% Corporate Tax rate on Qualifying Income. The guide
provides general guidance on the application of the
Corporate Tax Law to Free Zone Persons. It provides an overview of the
conditions required to be met for a Free Zone Person to be a Qualifying Free
Zone Person and benefit from the 0% Corporate Tax rate, and the activities that
are considered Qualifying Activities and Excluded Activities for a Qualifying
Free Zone Person. The guide
includes many examples to assist Businesses with understanding how the key
elements of the Corporate Tax Law apply to Free Zone Persons. The guide
also includes an explanation of the calculation of Corporate Tax for Free Zone
Persons, determination of Qualifying Income, and determination of taxable
income that is subject to the 9% rate of Corporate Tax. In addition, the guide
outlines the conditions for maintaining adequate substance for Qualifying Free
Zone Persons and the criteria for determining a Foreign Permanent Establishment
or a Domestic Permanent Establishment. Furthermore, the guide clarifies the
treatment of income derived from immovable property as well as the treatment of
income derived from Qualifying Intellectual Property. The Guide also included a detailed
explanation of Qualifying Activities, Excluded Activities and compliance
requirements. The FTA added that where
a Qualifying Free Zone Person operates through a Permanent Establishment in the
UAE (outside the Free Zones) or in a foreign country, the profits attributable
to such Permanent Establishment will be subject to the 9% Corporate Tax rate. The FTA highlighted in its guide that Free Zones are an integral part of the
UAE economy and play a critical role in driving economic growth and
transformation both in the UAE and internationally. It added that Free Zones
offer Businesses various benefits such as relaxed foreign ownership
restrictions, streamlined administrative procedures, modern and sophisticated
infrastructure, developed business communities and the availability of
additional legal entity forms and commercial activities. In a press statement, the FTA called on all Free Zone Persons to read the guide in its entirety for a complete understanding of the definitions and interactions of the different rules. The FTA noted that the Corporate Tax implementing decisions as well as guides including the new guide on Free Zone Persons are available on the FTA’s website.
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