The Federal Tax Authority (FTA) has issued a guide outlining the application of corporate tax to free zone persons in line with the free zone corporate tax regime, which enables qualifying free zone persons to benefit from a zero per cent corporate tax rate on qualifying income.
The document provides general guidance on the application of the corporate tax law to free zone persons. It provides an overview of the conditions required to be met for a free zone person to be a qualifying free zone person and benefit from the zero per cent corporate tax rate, and the activities that are considered qualifying activities and excluded activities for a qualifying free zone person.
The guide includes many examples to assist businesses with understanding how the key elements of the corporate tax law apply to free zone persons.
The guide also includes an explanation of the calculation of corporate tax for free zone persons, determination of qualifying income, and determination of taxable income that is subject to the 9 per cent rate of corporate tax. In addition, the guide outlines the conditions for maintaining adequate substance for qualifying free zone persons and the criteria for determining a foreign permanent establishment or a domestic permanent establishment. Furthermore, the guide clarifies the treatment of income derived from immovable property as well as the treatment of income derived from qualifying intellectual property. The guide also included a detailed explanation of qualifying activities, excluded activities and compliance requirements.
The FTA added that where a qualifying free zone person operates through a permanent establishment in the UAE (outside the free zones) or in a foreign country, the profits attributable to such permanent establishment will be subject to the nine per cent corporate tax rate.
In a statement, the FTA called on all free zone persons to read the guide in its entirety for a complete understanding of the definitions and interactions of the different rules. The corporate tax implementing decisions as well as guides including the new guide on free zone persons are available on the FTA’s website.