Free zone does not mean zero Corporate Tax
My setup agent said a free zone company pays no tax at all. Is that right?
The situation
Every free zone company is a taxable person and must register and file a Corporate Tax return. The 0% rate applies only to qualifying income of a Qualifying Free Zone Person.
The law
- Art 18, Federal Decree-Law 47 of 2022: Conditions to be a Qualifying Free Zone Person
- Art 3, Federal Decree-Law 47 of 2022: 0% rate on qualifying income and 9% on other taxable income
What it means for you
To qualify you need adequate substance in the zone, qualifying income, arm's length pricing, audited accounts, and you must not elect for the standard rate. If any condition fails in a year, you lose the status for that year and the following four. Example: a zone trading company selling goods to foreign buyers may qualify; a zone consultancy billing mainland clients usually will not. Plan the status before the year starts.
What to do
- List your income by customer location and type.
- Check each income line against the qualifying activities list.
- Confirm you have real substance in the zone.
- Book an audit and register for Corporate Tax.
Losing the status puts the company on the standard regime for the year of failure and the next four.
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