October 27, 2022Dated: | Byadmin admin | Uncategorized | Are all Freezone companies exempted from corporate tax in UAE? This has been a top question, since the time the UAE Government announced the introduction of Corporate Tax from 1st June 2023. It is confirmed in the Public Consultation Document that “Tax incentives” would be granted to Free Zone companies though the Consultation document clarifies that certain business profits would still be taxed at the regular CT rate of 9%. As per the proposed UAE corporate tax law, a 9% corporate tax will be imposed on annual taxable income exceeding AED 375,000 and a 0% tax will be imposed on taxable income not exceeding AED 375,000. When Freezone Companies will be eligible for 0% Corporate Tax Income earned from transactions with businesses outside of the UAE Income from transactions with businesses located in the same Free Zone. Income earned on transactions with businesses located in any other Free Zone. Income from the sale of goods by Free Zone companies located in Designated Zones to UAE mainland businesses that are importers of those goods. Income from transactions between Free Zone companies and their group entities located in mainland UAE. However, the associated payments made by mainland entities will not be deductible for UAE CT purposes. Income earned from transactions between Free Zone Persons and their group companies located in the UAE mainland. If their mainland-sourced income is limited to ‘passive’ income. Income like interest, royalties, dividends, and capital gains from owning shares in mainland UAE companies. When Free zone Companies will be imposed of 9% Corporate Tax? When Freezone company is transacting with Mainland company in UAE. The standard rate of 9% will apply to the mainland sourced income of the free zone with a mainland branch in UAE. Will free zone companies fall within the scope of Corporate Tax in the UAE? As per the Public Consultation document, Free zone companies will fall under the scope of Corporate Tax. However, the UAE Corporate Tax regime will honor the Tax Incentives currently being offered to the Free Zone Entities if it satisfies the following two conditions: If such entities maintain the adequate substance in the Free Zone and If it complies with all regulatory requirements. Whilst Free zone companies might benefit from 0% Corporate Tax, they would be required to comply with all the regulatory requirements. Freezone companies will have to register for CT, file tax returns annually, maintain adequate substance and comply with all the necessary requirements. Is it mandatory to get the financial statements/ books of accounts audited? Freezone company must have audited financial statements if they want to benefit from the 0% CT regime. It is always recommended to get the books of accounts audited to have a clean record to be able to comply with any law relating to the financials and also to understand the profit or loss and the the financial position of the business. How can we help? Flying Colour Tax Consultants can help companies to assess whether the business will fall under the scope of Corporate Tax, help in preparing the books of accounts and financial records, Tax registration, Tax Filing, and Annual Audit Assistance. Even though the Corporate Tax is effective from the financial year starting in 2023, businesses would need to assess now before expanding if their business in UAE Mainland or Free zone would lead to any Tax benefit. Entities operating in free zones will need to assess whether they need to segregate their free zone and mainland activities in order to take advantage of the 0% CT rate. FlyingColour specializes in assisting clients with cost-effective, high-quality services. We create value by working closely with our clients to provide a one-stop-shop solution for all their business needs.