Corporate Tax for Free Zone Companies in UAE is as important as any other companies established in the UAE. The UAE initiated Corporate Tax to achieve worldwide standards for tax transparency, avoid harmful practices, and incorporate best practices. The UAE continues to have some of the lowest corporation tax rates in the world.
According to the law, starting in June 2023, qualifying free zone businesses and individuals may be subject to a corporate tax of either 0% or 9% depending on their qualifying income.
Financial Statements needed for Tax Return
Appropriate bookkeeping will be necessary since financial statements must be created to support the amounts in the tax return.
- If your revenue for the applicable tax period was AED 3 million or less, you can produce your financial statements using a cash basis.
- If your revenue for the relevant tax period is AED 50 million or less, use IFRS for SMEs to compile financial statements.
- If not, then IFRS must be followed to prepare the financial statements.
If you fail to produce the necessary documents and other information as required by the tax legislation, you will be subject to penalties for maintaining inadequate records.
Relief for Small Business in Freezones
Applying for Small Business Relief may be possible if your revenue for both the current and prior tax periods is less than AED 3 million. At that point, you’ll be qualified for a 0% tax.
The availability of this exemption is valid through December 2026, and audited financial statements are not necessary.
A simpler way to produce your financial records is to prepare your financial statements on a cash basis.
Your annual tax return will be simplified (rather than a full tax return).
When filing your initial tax return, you will have the opportunity to file for Small Business Relief.
Corporate Tax Rate for Freezone UAE
A qualifying free zone person is required to pay corporate tax at the following rates under the Federal Decree Law on Corporate Income Tax:
- Corporate Tax rate on Qualifying Income is 0%.
- Tax rate on Taxable income that is not Qualifying Income is subject to 9%.
The FTA regulations specify and establish the precise qualifying income for an individual or company operating in a free zone. On the other hand, corporation tax for enterprises on the mainland gets more specific and is determined by the taxable income that the business generates.
Qualifying Free Zone Person
For the purposes of corporate taxation, not every free zone company will be Qualifying Free Zone Person.
To be considered a Qualifying Free Zone Person, the following conditions must be fulfilled:
- Has not chosen to be subject to corporate tax
- Registered in a free zone (FZCO).
- Maintains sufficient substance in the State.
- Generates qualifying income.
- Adheres to transfer pricing requirements.
- Keeps audited financial statements.
- Non-qualifying income must not exceed the “de minimis threshold”.
Deadline for Corporate Tax Registration
The UAE Federal Tax Authority has published a new decision, Decision No. 3 of 2024, effective March 1, 2024, establishing the deadlines for companies to register for Corporate Tax.
Any Company incorporated or registered after 1 March 2024, will have a deadline of 3 months from the date of incorporation, establishment, or recognition for submitting a Tax Registration application.
Failure to comply with these deadlines will result in a penalty of AED 10,000.
Important Notes:
The followings things should do to be ready and compliant for Corporate Tax for Free Zone Companies in UAE:
- Aware of the first tax period
- Know the first tax return is due
- Corporate Tax registration before the deadline date as indicated
- Maintain proper accounting records to substantiate your Small Business Relief application and tax return.
How can we help you?
By offering professional advice and guaranteeing adherence to local tax laws, TCA may assist firms in the UAE with corporate tax. TCA offers tax planning, return filing, and tax strategy optimization services that help businesses reduce their tax liabilities and stay out of trouble. Their comprehensive understanding of the UAE’s changing tax rules guarantees that companies remain informed about regulatory modifications, facilitating more efficient operations and sound financial planning. For businesses operating in the UAE, leveraging TCA’s experience can result in significant cost savings and improved financial efficiency.
