The United Arab Emirates (UAE) has introduced a new corporate tax regime, which came into effect on 1 June 2023. The standard corporate tax rate is 9%, but businesses operating in free zones can benefit from a zero per cent tax rate on their qualifying income.

To qualify for the zero per cent tax rate, a free zone business must meet certain conditions, including:

• Being incorporated, established, or registered in a free zone.
• Deriving qualifying income, which is defined as income from activities that are carried out in the free zone.
• Maintaining adequate substance in the UAE, which means having sufficient assets, employees, and expenditures in the country.
• Complying with the transfer pricing rules and regulations.
• Not having elected to be subject to the standard 9% tax rate.

Free zone businesses that do not meet all of these conditions will be subject to the standard 9% tax rate on their income.

The zero per cent tax rate on free zone income is a significant incentive for businesses to set up or relocate to the UAE. It is expected to boost the country’s economy and attract foreign investment.

In addition to the zero per cent tax rate, free zone businesses also enjoy a number of other benefits, such as:

• 100% foreign ownership
• No personal income tax
• No import or export duties
• Simple and streamlined business registration process

The UAE’s new corporate tax regime is designed to make the country a more attractive destination for businesses. The zero per cent tax rate on free zone income is a major part of this strategy, and it is expected to have a positive impact on the UAE’s economy.

For more information, please contact:

• Ministry of Finance: https://www.mof.gov.ae/en
• UAE Free Zones: https://www.uaefreezones.com/