The Advantages of Registering a Company in a Free Zone in the UAE: A Market Research Expert’s Analysis”
Free zones have long been a popular option for companies looking to establish a presence in the UAE. With the introduction of the Corporate Tax Law in 2018, the advantages of registering in a free zone have only become more pronounced. In this blog post, we’ll take a closer look at what it means to be a Qualifying Free Zone Person (QFZP) and what benefits this can bring to your company.
The Corporate Tax Law considers companies and branches registered in a Free Zone as Taxable Persons and requires them to meet normal compliance obligations, including transfer pricing requirements. However, for those entities that meet the conditions to be considered a QFZP, there is a significant benefit: a 0% UAE corporate tax rate on qualifying income. Income that is not considered qualifying income will be taxed at the standard 9% rate.
To be eligible for the 0% tax rate, a QFZP must meet several conditions, including being incorporated or established in a free zone, maintaining adequate substance in the UAE, deriving qualifying income, not having made an election to be subject to the standard UAE corporate tax regime, complying with all transfer pricing rules, and meeting any other conditions set by the Ministry of Finance. If a QFZP fails to meet any of these conditions, it will be subject to the standard 9% tax rate from the beginning of that tax period.
The definition of “qualifying income” is still to be defined in a cabinet decision, as is the definition of what will be regarded as adequate substance in the UAE for a free zone entity. However, it is expected that the definition of qualifying income will include income derived from outside of the UAE or within free zones, based on the recent public consultation document.
It is worth noting that a QFZP can make an election to become subject to the standard UAE corporate tax on all of its income, though it is not specified if such an election is irrevocable.
In conclusion, registering a company in a free zone in the UAE offers several advantages, including the potential for a 0% corporate tax rate on qualifying income. While some details remain uncertain, it is clear that there are substantial benefits to be gained from being a Qualifying Free Zone Person. As a market research expert, I would highly recommend considering the option of registering in a free zone to companies looking to establish a presence in the UAE.
