Federal Tax Authority Issues Corporate Tax Guide on Free Zone Persons

Abu Dhabi, UAE 26 May 2024 – 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.