Question 1

What are Qualifying Free Zone Companies?

Accepted Answer

Companies operating within these free zones can avail from the 0% CT rate on the Qualifying Income of free zone companies in Dubai subject to meeting specific conditions. There are three primary categories under which companies may fall:

1. UAE mainland companies: these entities are generally subject to the standard 9% corporate tax rate on their taxable income (unless any exemption or relief applies), as per the CT Law.

2. Foreign companies managed from the UAE: these companies are subject to the standard 9% corporate tax rate.

3. Dubai free zone companies: entities operating within Dubai’s free zones are subject to the following:

Non-Qualifying Income is subject to the standard corporate tax rate of 9%.
Qualifying Income benefits from a 0% corporate tax rate, provided certain conditions are met.

Question 2

What constitutes a Qualifying Free Zone Person (QFZP)?

Accepted Answer

A Qualifying Free Zone Person (QFZP) is a free zone entity that satisfies a series of rigorous conditions, as outlined in Article 18 of the Corporate Tax Law, along with related Cabinet and Ministered Decisions. To qualify, an entity must:

1. Maintain substantial presence within the free zone
2. Derive income classified as Qualifying Income
3. Does not elect to be subject to the standard UAE corporate tax rate
4. Adhere to the arm’s length principle and maintain appropriate Transfer Pricing documentation for transactions involving Related Parties and Connected Persons.
5. Ensure that its non-Qualifying revenue does not surpass the de minimis threshold (the lesser of 5% of total revenues or AED 5 million per tax period)
6. Prepare audited financial statements in accordance with International Financial Reporting Standards (IFRS) or IFRS for SMEs, or on a cash basis if revenue does not exceed AED3 million

Question 3

What defines a Qualifying Activity?

Accepted Answer

A Qualifying Free Zone Person (QFZP) can benefit from the 0% Corporate Tax if it derives Qualifying Income from transactions in respect of “Qualifying Activities”.

Corporate migration to a Dubai free zone

Qualifying Free Zone Companies in Dubai

Related Sites

Corporate migration to a Dubai free zone

Qualifying Free Zone Companies in Dubai