The UAE Federal Tax Authority's guide outlines criteria for zero corporate income tax in free zones, requiring audited financial statements, substance, and qualifying income.
Non-qualifying income exceeding Dh5 million or 5% disqualifies the entity from the tax benefit. All-in or all-out regime applies, except for permanent establishments.
The FTA's guide clarifies grey areas, including zero corporate tax on high sea sales, domestic bills for exports, and cryptocurrency investment. Interest income from surplus funds is non-qualifying. Free zone holding companies without employees can meet substance test through director decisions, a significant advantage.
Free zone vs designated zone
Taxpayers should confirm their status with free zones for corporate tax purposes. Goods distribution from designated zones qualifies even without physically entering the UAE. Purchases in designated zones can be from mainland and still qualify. Processing goods includes more than manufacturing.
Commodities traders don't need goods traded on an exchange; potential tradability suffices, vital for oil, gas, gold, and agricultural products. Lack of qualifying income temporarily doesn't disqualify free zone status. Personal investing (e.g., excess cash) counts as financing for related parties, qualifying as a activity.
A qualifying free zone person doesn't need separate financial statements for qualifying income versus other income, noted Vanhee.
News Source: Khaleej Times
