Are companies in UAE Free Zones subject to Corporate taxes?

Are companies in UAE Free Zones subject to Corporate taxes?

5 months ago

20 June 2022



    Free Zone persons means companies and branches registered in a UAE Free Zone

    Various free zones have offered a corporate tax-free, business-friendly environment to Free Zone Persons. Many companies were set up in Free Zones to avail of these tax-free benefits. Businesses have invested large capital and committed their time and resources to scale up the business.

    Now that the UAE is introducing corporate taxes:

    • what will happen to the companies in Free Zones?
    • whether they will end up paying corporate taxes like any other companies in the UAE?
    • are there any special benefits or treatment in offer for their income?

    These were the questions bothering the investors of the Free Zone companies.

    Here is our attempt to help you understand the new tax laws proposed to be introduced soon

    The UAE's Ministry of Finance has released a public consultation document. The document contains information and primary aspects of the proposed UAE CT regime. The purpose of the document is to seek the views and comments of business communities and other interested parties. Interested people may provide their comments on or before 19 May 2022.

    According to the Ministry of Finance, the UAE CT regime will honor the tax incentives offered to the Free Zone Persons. With conditions.

    1. Are free zone persons exempt from UAE Corporate Tax?

    No, a free zone person is not exempt from UAE CT.

    However, a Free Zone Person is subject to a 0% CT rate. To get these benefits the Free Zone Person must meet certain conditions. The conditions are:

    • maintain adequate substance in the Free Zone (office premises, employees, decision making, etc)
    • comply with all regulatory requirements
    • file tax returns and submit Audited financial statements

    2. What income of free zone persons qualifies for a 0% CT rate? 

    To avail 0% rate, a Free Zone Person must maintain proper books of accounts, systems, and controls and prepare Annual financials statements to properly arrive at the accounting income. The below three scenarios helps to understand the taxability.

    a. Free Zone Persons who do not have a branch in the UAE mainland

    0% CT rate will be applicable for Free Zone Person for the income earned from the following activities.

    • businesses located outside of the UAE
    • businesses in the same Free Zone or
    • business from other Free Zones in the UAE 
    • certain regulated financial services directed at foreign markets
    • for Free Zone person located in a Designated Zone for Value Added Tax (VAT) purpose and earns income from the sale of goods to mainland importer on records for Customs and VAT purposes
    • earns only passive income (interest, royalties, dividends, and capital gains) from mainland UAE companies

    b. Free zone persons who have a branch in the UAE mainland

    • branch income will be subject to a 9% CT rate
    • the free zone income will continue to be taxed at a 0% CT rate

    Key requirement: The Free Zone Person must maintain proper books of accounts for its UAE mainland branch.

    c. Free zone persons dealing with their group companies in the mainland

    • transaction between Free Zone Person and their group companies located in the mainland UAE are also subject to a 0% CT rate.
    • however, payments made to the Free Zone Persons by their mainland group companies will not be a deductible expense for the mainland group companies.

    3. Are there any other requirements for a Free Zone Person to claim a 0% CT rate?

    Yes the following are the other conditions:

    • free zone person will have to file its CT return within the due date.
    • must submit audited financial statements.

    The Wrap

    Many businesses in the UAE operate multiple branches/subsidiaries. Some in the Free Zones and some more in Mainland. To conduct business both within and outside of the UAE. Inter-company transactions between these companies are common.

    Now is the time for a Free Zone Person to review and evaluate their commercial activity and transactions. Even insignificant transactions may have an unwarranted impact on the tax liability.

    Secondly, businesses may have to reconsider their ownership structure. To take advantage of benefits such as loss carry forward, intra-group of assets transfers.


    Related Topics

    Icon5 months agoIcon 21 June 2022

    How group companies are taxed? (UAE Tax Group)

    Learn more about filing a single tax return for group companies under the new CT Law in UAE

    Icon5 months agoIcon 21 June 2022

    Corporate Tax in UAE: Consultation document UAE Ministry of Finance

    Have a say in how the UAE Corporate Tax laws should be - submit your comments and learn more about the new CT Law.

    Icon5 months agoIcon 21 June 2022

    Corporate Tax: Loss carry forward - What, When and How much?

    All the answers on Tax loss carry forward under the new Corporate Tax Law.

    Icon5 months agoIcon 20 June 2022

    UAE Corporate Tax Rates: How to Calculate your tax liability

    Calculating your tax liability under the Corporate Tax Law

    Icon5 months agoIcon 20 June 2022

    Are companies in UAE Free Zones subject to Corporate taxes?

    Are companies in UAE Free Zones subject to Corporate taxes?

    Icon9 months agoIcon 06 February 2022

    New Corporate Tax in UAE: All You Need to Know

    The Corporate Tax Law is a Federal Law that will apply to all businesses and commercial activities(legal entities)in the UAE. Find out more.



    With over 30 years of hard work and commitment to making a real difference, KPI has grown to serve customers from a variety of business sectors and industries across Middle East.

    KPI | Suite 301 & 308, Building – 2, Bay Square, P.O. Box 121395, Business Bay, Dubai, UAE.

    +971 4 455 10 10
    [email protected]