FAQ on Corporate Tax for Free Zone Entities in the UAE

Qualifying income generally includes income derived from transactions with businesses outside the UAE, within the Free Zone, or with other Free Zone entities. The Federal Tax Authority (FTA) provides specific guidelines on qualifying income. 

Free Zone entities must: 

• Maintain adequate substance in the UAE. 

• Derive income that qualifies as “qualifying income.” 

• Comply with transfer pricing regulations. 

• Avoid conducting business directly with the UAE mainland (subject to exceptions

No, only those entities that meet the specified conditions qualify for the 0% Corporate Tax rate. Entities conducting business with the mainland or not meeting compliance requirements may be subject to the standard Corporate Tax rate of 9%. 

Income derived from mainland business activities is subject to the standard Corporate Tax rate of 9%. However, Free Zone entities may engage in certain exempt activities with the mainland under specific regulations. 

Yes, all Free Zone entities must register with the FTA and file an annual Corporate Tax return, even if they qualify for the 0% tax rate. 

Exemptions may apply to specific public benefit entities or qualifying investment funds operating within the Free Zone. 

Yes, Free Zone entities must maintain proper financial records and prepare financial statements in accordance with applicable accounting standards to ensure compliance with Corporate Tax Regulations.

Startups and small businesses operating in Free Zones benefit from the 0% tax rate on qualifying income and simplified compliance requirements, provided they meet eligibility criteria.

No, dividends and capital gains earned from qualifying investments are generally exempt from Corporate Tax. 

Entities that fail to meet qualifying conditions may lose their eligibility for the 0% tax rate and be subject to the standard 9% Corporate Tax rate on their taxable income. 

Yes, Free Zone entities can claim deductions for expenses incurred wholly and exclusively for the purpose of generating taxable income. 

Income from international trade activities is generally considered qualifying income and may benefit from the 0% Corporate Tax rate, subject to compliance with regulations. 

Yes, Free Zone entities must comply with the UAE’s transfer pricing regulations and ensure that transactions with related parties are conducted at arm’s length. 

In most cases, Free Zone entities must prepare audited financial statements to comply with Corporate Tax regulations, especially if they wish to claim the 0% tax rate.