We have been approached by many of our clients that own Free Zone Companies to confirm that due to the location of their organization they would be exempt from Corporate Tax in the UAE.   
The UAE Government, the Ministry of Finance released a Public Consultation Document on UAE Corporate Tax, in which it provides further details of the anticipated change in the tax regime.  This document provides further colour for legal entities registered in Free Zones. 

The Ministry of Finance recognizes the importance of the Free Zone companies to the UAE economy and will continue to honour the tax incentives currently being offered to such entities. 

Given the above a Free Zone Entity will pay Corporate Tax at a rate of 0% in the following instances: 

  • Income earned from transactions outside of the UAE 
  • Income earned from transactions with other Free Zone entities 
  • Passive Income earned from Mainland UAE entities 
  • This would include income from interest, royalties, dividends and capital gains 
  • Income earned from certain regulated financial services, directed at foreign markets 
  • Income earned from group companies located in Mainland UAE 
  • Equally the expense incurred by the group company will not be tax deductible 

A Free Zone Entity will pay Corporate Tax at a rate of 9% on income earned from Mainland UAE transactions, where it has a branch in in Mainland UAE.  If a Free Zone Entity does not maintain a branch in Mainland UAE and earns income from Mainland UAE that is not passive it may be disqualified from its 0% Corporate Tax Regime in respect of all their income. 

Contact us today to ensure that your Free Zone business activities do not fall foul of the directives provided by the Ministry of Finance