Corporate Tax
Corporate Tax is a form of Direct Tax that is to be levied on all Companies operating in the UAE. For companies with a net profit of AED 375,000 and above the rate of Corporate Tax in UAE is 9%. It is one of the lowest Corporate Tax rates in the world and the Corporate Tax collected from the companies operating in the UAE will be used for the development aspects of the Country.
Companies operating in the Free Zones can avail of the preferential Corporate Tax Treatment of Zero percent. It is by meeting certain requirements of earning a ‘Qualifying Income’ from ‘Qualifying Activities’ and not from any ‘Excluded Activities’ that entrepreneurs must seek assistance from expert Tax Consultants such as AURION for determining the Corporate Tax Applicability for their company.
All companies in the UAE must Register for Corporate Tax, connect with our expert team to know more about Corporate Tax Registration in the UAE. Also, here is a Corporate Tax Guide that will be helpful to learn more about Corporate Tax and its applicability in your company.
Corporate Tax Guide
Corporate Tax Applicability in Free Zones
In the Free Zones, companies that are qualified to get a Zero rating of Corporate Tax have to meet certain criteria as follows. If a Free Zone person earns “qualifying income” they can be called a “Qualifying Free Zone Person” (QFZP) and get the zero-rated Corporate Tax Treatment.
Conditions to become a Qualifying Free zone person (QFZP)
For a Free Zone person to be a ‘Qualifying Free Zone Person’ they must meet the below criteria.
1
Maintain adequate substance. (office, full-time employees, etc)
2
Comply with Arm’s length principle and transfer pricing documentation and
3
Has not elected to be subject to corporate tax by choice.
4
Its non-qualifying revenue does not exceed the de minimis limit.
5
Prepare audited financial statements.
Criteria for ‘Qualifying Income’ of a ‘Qualifying Free Zone person (QFZP)’
For a ‘Qualifying Free Zone’ person to earn ‘Qualifying Income’; the income must be generated in any of the following ways.
- Derived from transactions with a Free Zone Person, except for income derived from Excluded Activities.
- Income derived from transactions with a Non-Free Zone Person, but only in respect of Qualifying Activities that are not Excluded Activities.
- Income derived from the ownership or exploitation of Qualifying Intellectual Property.
- Any other income provided that the Qualifying Free Zone Person satisfies the deminimis requirements. [De-minimis: Non-qualifying income can be lower than 5% or AED 5 million of total income.
List of Activities that can be conducted with a Non-free zone person ( Mainland or Foreign)
Following is the list of activities that can be conducted with a Non-free zone person.
Excluded Activities:
Registration for Corporate Tax Purposes:
Corporate Tax Registration is mandatory for all licensees including those who have zero turnover or no activity. Even if the turnover is 100% outside UAE (even in case of high sea sales) registration is required as the UAE resident person is taxed on worldwide income.
Also, Branches are not treated as separate legal entities and do not require separate Corporate Tax Registration. Branches of foreign companies are also to be registered for Corporate Tax in UAE. Exemptions can be availed under Article 24 of the Decree-law to exclude the income.
Deadline for Corporate Tax Registration
For all new companies registered in UAE, there is a 3-month time from the date of License issuance to submit the Corporate Tax Registration Application. Existing companies in UAE, based on their license issue date (irrespective of year of issuance) must follow the below table and start their Corporate Tax Registration Application process.
| Date of License issuance irrespective of year of issuance | Deadline for submitting a Tax Registration application |
|---|---|
| 1 January – 31 January | 31 May 2024 |
| 1 February – 28/29 February | 31 May 2024 |
| 1 March – 31 March | 30 June 2024 |
| 1 April – 30 April | 30 June 2024 |
| 1 May – 31 May | 31 July 2024 |
| 1 June – 30 June | 31 August 2024 |
| 1 July – 31 July | 30 September 2024 |
| 1 August – 31 August | 31 October 2024 |
| 1 September – 30 September | 31 October 2024 |
| 1 October – 31 October | 30 November 2024 |
| 1 November – 30 November | 30 November 2024 |
| 1 December – 31 December | 31 December 2024 |
Documents Required for Corporate Tax Registration
Following are the documents required for the Corporate Tax Registration. AURION will assist in the process of preparing the required documents and registering your company for Corporate Tax. It is highly advised that companies begin the process as early as possible to ensure timely submission of the required documents.
Frequently Asked Questions (FAQ)
From a taxation point of view, what is the difference between a Designated Zone and a Free zone?
Free Zone:
A Free Zone is a business jurisdiction in UAE that is governed by the Free Zone Authorities. They have separate legislation and regulations. Free Zones in the UAE play a vital role in economic growth. There are more than 40 Free Zones in UAE.
The Free Zones support business investors with highly efficient infrastructure and business support services to seamlessly establish and operate a company in the UAE.VAT and Corporate Tax will be applicable in Free Zone and there will be exemptions if certain criteria is met by the Free Zone company.
Designated Zone:
A Designated Zone in UAE is a Free Trade Zone that is considered to be outside of UAE territory for VAT Purposes. So, supplies made from inside a designated zone are free of VAT. To gain the Designated Zone status the Free Zone must be fenced and must have a custom-check point.
Also, there are well-defined regulations for the movement of goods and individuals to and from the Free Zone. Companies operating in a Designated Zones can get Corporate Tax exemption under specific criteria.
Is the income of a free zone company zero-rated under UAE Corporate Tax (CT)?
Only income is generated from “Qualifying Activities” and not from Excluded Activities. Also, there is a ‘Demimis’ requirement in UAE. Qualifying Free Zone Persons can be exempt from Corporate Tax if their non-qualifying income is less than 5 % of the total revenue or AED 5 Million, whichever is lesser.
What is a Qualifying income?
A Qualifying Income is an income earned by a Free Zone Person by conducting Qualifying Activities and not excluded activities. There are a few criteria to be met to determine the ‘Qualifying Income’.
What are the criteria to be met to determine the 'Qualifying Income'?
A Qualifying Free Zone Person must meet the following criteria to determine the ‘Qualifying Income’.
- Income from transactions with other Free Zone persons. [ income must not be from excluded activities)
- Income from transactions with a Non-Free Zone Person but only for Qualifying activities and not excluded activities.
- De Minimis Requirement – If income from non-Qualifying Activities is less than 5 % of the Total Revenue or AED 5 million whichever is lesser.
- Income from transactions with a Free Zone person where that Free Zone person is the Beneficial Recipient of the goods or services.
What if a free zone conducts activities other than Qualifying Activities?
Activities that are not listed under Qualifying Activities either fall under excluded activities or Non-qualifying activities. Income from such activities is subject to ‘De minimis’ requirements. That is, such income should be lower than 5% of the total revenue or AED 5 million or whichever is lower to remain as a Qualifying free zone person. Refer Article 4
What are the excluded activities? Are the excluded activities and non-qualifying Activities are same?
Excluded activities are listed under Article 3 of Ministerial Decision 139. Excluded activities are part of Non-qualifying income. Non-qualifying activities are the activities where the other party to the transaction is a Non-qualifying free zone person. (For example, the distribution of goods is a qualifying activity but if done to a Non-qualifying free zone person, it becomes a Non-qualifying activity)
Is a free zone company doing trading business zero-rated for UAE CT?
If the Free Zone Company is in a designated Free Zone and the goods are entering the Designated Free Zone in UAE, then it is treated as a ‘Qualified Activity’. Any trade done with a mainland company or other normal person will be subject to the standard 9% Corporate Tax if the annual revenue threshold of AED 375,000 or above is met.
So, the Free Zone Company doing Trading Business can get a Zero-Rated CT if the goods and services are sold to or between:
- Free Zone companies in Designated Zones
- Free Zone person is the beneficial Recipient (consumption of goods and services within the Free Zone and not sold to external parties)
- Import -Export from Designated Free Zone to international markets and goods not entering UAE. (High Sea sales)
Ours is a free zone company doing only high sea sales. Is our revenue zero-rated for CT?
Trading activities are done via a Designated Zone and if the goods are not touching UAE ports or entering inside of UAE, then the Free Zone Company based in the Designated Zone can avail of Zero-Rated Corporate Tax.
Ours is a Service company. Is our income zero-rated for CT?
As per Article 3 (1) (a) of Cabinet Decision) income derived “from a free zone person” falls under zero-rated activities. Hence, services provided to a free zone person by a free zone person will be zero rated, provided income derived from services provided to a Non-free zone person falls under the De-minimis limit mentioned under Question no 3.
All our income is derived from services provided to a person outside the UAE. Is our income zero-rated for CT?
No. As per Article 3 (1) (a) of Cabinet Decision) income derived “from a free zone person” only falls under zero-rated activities. (De-minimis limit can be considered for services provided to a Non-free zone person). Therefore services provided to a foreign person will be subject to UAE CT.
What about income from the branch of a free zone company on the mainland?
Not zero-rated. As per Article 1 of Cabinet Decision 55 (definitions), a place of the presence of a qualified free zone person outside the free zone is treated as Domestic Permanent Establishment as per Article 4 (4) and subject to the provisions of Article 14 of Decree-law (Treated as a permanent establishment of a Non-resident person).
As per Article 3 (1) of the Cabinet Decision, income attributable to a Domestic Permanent Establishment (can be a branch or a related party) shall not be included in qualifying income. Article 3 (5) of Cabinet Decision 55 further clarifies this point. Hence income from a branch in the mainland is allowed only subject to the limit of De minimis explained under Question 3 above.
What if the free zone person is a branch of a mainland company or a foreign company?
The free zone entity is treated as a juridical person for UAE CT purposes. Therefore, will be eligible for a zero rate of tax on “Qualifying income” earned by the branch and also subject to the De Minimis limit under Article 4 of the Cabinet Decision.
Are there any other conditions that a free zone person must fulfil to become a Qualifying free zone company?
Apart from meeting the conditions set out in Cabinet Decision No 55 and Ministerial Decision no 139, a qualifying free zone must,
- Maintain adequate substance.
- Comply with Arm’s length principle and transfer pricing documentation and
- Has not elected to be subject to corporate tax by choice.
- Its non-qualifying revenue does not exceed de minims limit.
- Prepare audited financial statements.
(Refer to Article 18(1) of decree law and Article 5 (1) of Ministerial decision 139 of 2023.
What is the meaning of maintaining “Adequate substance”?
- A Qualifying Free Zone Person shall undertake its core income-generating activities in a Free Zone and, having regard to the level of the activities carried out, have adequate assets, an adequate number of qualified employees, and incur an adequate amount of operating expenditures.
- Activities can be outsourced to a Related Party in a Free Zone or a third party. In a Free Zone, provided the Qualifying Free Zone Person has adequate supervision of the outsourced activity.
Refer to Article 7 of Cabinet Decision 55 of 2023.
What if any particular time during a tax period if any of the required conditions are not met?
The qualifying free zone person shall cease to be a qualifying free zone person
- From the beginning of the relevant tax period and
- For the subsequent 4 tax periods.
Refer to Article 5 (2) of Ministerial Decision 139 of 2023.
For any inquiry regarding Corporate Tax Applicability in UAE, connect with our expert Tax Consultants right away!
