Trading companies in designated free zones in the UAE can now benefit from a zero-percentage tax provision in the corporate tax, regardless of their dealings with mainland companies. This tax benefit is specifically aimed at wholesale and high sea traders, as well as importers and exporters, and is expected to boost the UAE’s exports and manufacturing sectors. As per the new guidelines issued by the UAE Federal Tax Authority, businesses in qualifying free zones can enjoy a zero-tax rate on qualifying income, while any non-qualifying income will be taxed at 9.0 percent.
The guidelines have also clarified the treatment of taxation of trading goods from designated free zones. Traders importing goods in designated free zones such as Jafza, Dafza, or Saif Zone for selling to mainland customers can now avail of the zero percentage benefits. Additionally, companies engaged in high-sea trading or third port shipment, where goods are bought from one country and distributed to another without passing through UAE ports, are also eligible for zero-rated taxation. Income from the export of goods from designated free zones to customers outside the UAE is also eligible for a zero rate.
To qualify for the zero percentage tax benefits, traders in designated free zones need to ensure that their customers are using the goods for resale or processing for resale, rather than consumption. Maintaining adequate substance in the designated free zone is also crucial, requiring the distribution activity to be conducted from the free zone, employing a sufficient number of qualified employees, and incurring business expenses within the free zone. Failure to meet these conditions in any particular year can result in the loss of eligibility for zero percentage tax benefits for the next four years.
It is important for companies to analyze their eligibility in 2024 and ensure they meet all the required conditions to enjoy the benefits for the upcoming years. By operating from the designated free zone and satisfying all the necessary criteria, businesses can take advantage of the zero percentage tax benefits and support their growth and competitiveness in the UAE’s trading landscape. Tax experts emphasize the significance of understanding and adhering to the guidelines to maximize the tax benefits available to trading companies in designated free zones.
Overall, the new guidelines on corporate tax in the UAE aim to provide a favorable environment for trading companies in designated free zones, encouraging export-oriented activities and boosting the manufacturing sector. Businesses involved in wholesale, import, and export activities stand to benefit the most from the zero percentage tax provision, contributing to the overall economic growth and competitiveness of the UAE. By complying with the relevant conditions and maintaining adequate substance in the designated free zones, companies can seize the opportunity to minimize their tax liabilities and enhance their profitability in the evolving business landscape.
