Free zone companies need to tick multiple boxes on compliance
UAE’s free zone specific corporate tax rules

The UAE’s free zone specific corporate tax rules are designed to bolster economic growth by offering a favorable tax environment for entities operating within designated free zones. The rules provide a significant advantage by offering a 0 per cent tax rate on qualifying Income.

However, understanding the distinctions between qualifying and non-qualifying activities, the de minimis requirements, and the treatment of real estate is crucial for businesses to fully leverage the benefits

CONDITIONS TO BE A QUALIFYING FREE ZONE PERSON

* The entity must be a juridical person incorporated, established, or registered in a free zone.
* Adequate substance: The entity must maintain adequate assets, full-time employees, and operating expenditures in the free zone.
* Qualifying income: Income must be derived from transactions with other free zone persons, activities within the scope of qualifying activities, or the ownership or exploitation of qualifying intellectual property.
* Transactions with related parties must comply with the arm’s length principle.
* Proper documentation for transfer pricing must be maintained.
* The entity must prepare and maintain audited financial statements.
* De minimis requirements: Non-qualifying revenue should not exceed the lower of Dh5 million or 5 per cent of total revenue.

Identifying qualifying activities
QUALIFYING ACTIVITIES ARE ESSENTIAL FOR ENTITIES TO BENEFIT FROM THE 0 PER CENT CORPORATE TAX RATE. THESE INCLUDE:

* Production of goods within the free zone.
* Trading in raw metals, minerals, energy, and agriculture commodities.
* Ownership, management, and operation of ships.
* Fund and wealth management services
* Treasury and financing services to related parties
* Distribution of goods from designated zones.
* Logistics services