Is UAE Free Zone Business Setup Actually Tax-Free?

Tax Free | UAE Free Zone Business

UAE Free Zones was the ultimate tax haven, with no income or corporate taxes for businesses or individuals for decades. This zero-tax rule was a big draw for investors, especially for companies involved in re-exporting goods. They could import stuff tax-free, store it in the Free Zone, and then ship it out again without any taxes.

Things changed slightly in June 2023 when the UAE introduced a corporate tax. But here’s the good news: there is still no income tax! Also, for Free Zone businesses – if they follow specific rules, they can still get a 0% corporate tax rate on their qualifying income. 

So, while most companies in the UAE now pay a 9% corporate tax, Free Zone business setup in Dubai can stay tax-free under certain conditions. This still keeps the UAE as a hotspot for Free Zone business setups. Let’s understand this in detail!

Let’s Start with UAE Free Zone Business Setup:

The UAE’s Free Zones are economic powerhouses, propelling the nation forward. Dubai’s Free Zone companies alone are projected to contribute a staggering AED 250 billion to GDP by 2030. The UAE boasts a network of over 40 Free Zones, each designed to empower entrepreneurs and foreign investors. These zones offer a compelling combination of benefits – 100% foreign ownership, streamlined business setup, and cost-effective infrastructure. 

Imagine joining a thriving ecosystem like the Jebel Ali Free Zone, a logistics and trade giant boasting an annual trade value exceeding US$104.2 billion. Whether you choose a Free Zone Establishment for your solo venture or a Free Zone Company for a partnership, the UAE caters to your needs. While residency isn’t mandatory for ownership, most zones require a resident general manager, ensuring a local presence for your business. With its Free Zones, the UAE offers a launchpad for global success, attracting investors to unlock their full business potential. But are Free Zones tax-free? And are corporate taxes implied on Free Zone businesses as well?

Understanding The UAE Corporate Tax:

UAE Corporate Tax | UAE Free Zone

In June 2023, the UAE introduced a new Federal Corporate Tax (CT) system. This meant most mainland companies in the UAE would now pay a 9% tax on their annual taxable income above AED 375,000. But, what about Free Zone business setups? 

Free Zone businesses still had the potential to remain tax-free! The key term for it is Qualifying Free Zone Person (QFZP).

What Is Qualifying Free Zone Person (QFZP)?

There Are Three Main Categories for Qualifying Income:

  • Free Zone Deals: Income from business done with other Free Zones (excluding certain activities).
  • Qualifying Activities: Income from approved activities you do with non-Free Zones.
  • De Minimis Rule: Even some non-qualifying income is okay, as long as it stays below a certain limit (either less than 5% of your total income or less than AED 5 million).

What if I Don't Qualify as a QFZP?

If your Free Zone business setup in Dubai doesn’t meet the QFZP criteria, you will be subject to the standard 9% corporate tax on your taxable income above AED 375,000. Also, any income earned by a QFZP that falls outside the qualifying criteria will also be taxed at the 9% rate.

Stay Informed and Compliant:

This is a new system, and the full details for QFZP qualification are still being ironed out. So, if your non-qualifying income jumps above the limit, you lose your QFZP status for that year. That means all your income, even the previously qualifying stuff, gets taxed at the standard 9% rate. This is what you can do;

  • Track Your Income: Carefully monitor your income streams to stay within the de minimis limits.
  • Record Keeping is Key: Proper financial records are crucial for proving your qualifying income.
  • Seek Expert Advice: Consult tax advisors to ensure you are compliant and optimize your tax position.

Understanding qualifying income is vital for Free Zone companies to thrive under the new tax regime. By staying informed, adaptable, and compliant! This way you can continue to benefit from the UAE’s Free Zone system.

Consult an Expert!

This article just serves as a starting point, but for specific advice regarding your Free Zone business setup-related information or about taxation policies in Free Zones consult a tax professional familiar with the new regulations.

Comprehend the new corporate tax system and the QFZP requirements to ensure your Free Zone business continues to not just operate but flourish!

To connect with an expert right away, book a free consultation with CorpCreators today!

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