Companies operating in free zones in the UAE must fulfill specific requirements to qualify for zero per cent corporate income tax on their activities and become a qualifying free zone person (QFZP), as per the latest guide from the Federal Tax Authority. Among the conditions for eligibility include possessing audited financial statements, having substance, and earning income from qualifying activities. The regime is strict, with any non-qualifying income disqualifying the entity if it crosses certain thresholds.
Tax consultants emphasize the importance of staying informed about the latest guidelines. The new guide addresses grey areas such as the eligibility for zero per cent corporate tax benefit on high sea sales, domestic bills for exports, and investment in cryptocurrencies. Free zone businesses must be aware that interest income from surplus funds is non-qualifying and that holding companies without employees can now meet the substance test based on director decisions.
Differentiating between free zones and designated zones is vital for taxpayers, as it impacts their corporate income tax status. For the distribution of goods from a designated zone to qualify as a qualifying activity, the goods don’t necessarily have to physically come to the UAE. Goods imported into the designated zone and subsequently exported would also constitute a qualifying activity. Commodities traders can benefit from the flexibility in the guidelines regarding the trading of goods on commodity exchanges.
Investing excess cash for oneself as a free zone person is considered a qualifying activity, as it is deemed as financing to related parties. A qualifying free zone person is not required to prepare separate financial statements for their qualifying income and other income. Understanding these nuances and meeting the criteria laid out by the FTA is crucial for businesses operating in free zones to avail the zero per cent corporate income tax benefits and maintain their qualifying free zone person status.
