In the UAE, corporate tax is not levied at the federal level. However, businesses operating outside of free zones may still be subject to local taxes imposed by individual emirates.
Free zone-based trading businesses enjoy a tax-free status, meaning they are not required to pay any corporate taxes on their profits. This can be a significant advantage for businesses looking to operate in the UAE, as it allows them to keep more of their earnings.
It is important for free zone-based trading businesses to confirm their tax status with the relevant authorities and ensure they are complying with all local regulations and requirements. Failure to do so could result in penalties or fines.
To obtain the maximum benefits of 0% tax for Free Zones entities, the following conditions are to be met the as per the U.A E. CT Law.
- Maintaining adequate substance in the free zone
- Deriving Qualifying Income as specified in the Cabinet decision 100 of 2023
- Not having elected to be subject to CT
- Complying with the Arm's Length Principle and Transfer Pricing documentation
- Preparing audited Financial Statements in accordance with the law
- Ensuring non-qualifying revenues do not exceed the de-minimis requirements
The Ministerial Decision No. 265 of 2023 read along with the Cabinet Decision 100 of 2023, have expanded the scope of Qualifying activities as below.
- The manufacturing of products or materials
- The processing of products or materials
- Trading of qualifying Commodities
- Investing in stocks and other securities
- Ship ownership, management, and operation
- Ownership and Exploitation of Intellectual Property
- Reinsurance services
- Fund management services
- Wealth and investment management services
- Headquarter services to Related Parties
- Finance and leasing Activities
- Treasury and finance services to Related Parties
- Aircraft financing and leasing, including engines and routable components
- Distribution of goods or materials in or from a Designated Zone to a client who resells such goods or materials, or parts thereof, or processes or changes such goods or materials, or portions thereof, for the purpose of sale or resale.
- Logistics services
- Banking activities - regulated financial activities (except Excluded Activities)
- Insurance Activities (except Excluded Activities)
- Ancillary activities
The imposition of tax and tax rate are as follows:
Considering the above facts, trading firms in UAE free zones must check 0% status of goods for import and export. This means that the goods being traded are not subject to any customs duties or taxes, making them more competitive in the market. By ensuring that their goods have a 0% status, trading firms in UAE free zones can attract more customers and maximize their profits. Additionally, having 0% status can help trading firms in UAE free zones comply with international trade regulations and avoid any potential legal issues.
The UAE's 0% tax status for free zone-based trading businesses makes it an attractive destination for companies looking to expand their operations in the region.