Criteria for a Qualifying Free Zone Person

23 October 2023 - Under the United Arab Emirates (UAE) Corporate Tax (CT) Regime, Qualifying Free Zone persons can avail a preferential 0% CT rate on their Qualifying Income, provided they meet the following conditions:

1. Maintaining adequate substance in the free zone
2. Deriving Qualifying Income
3. Not having elected to be subject to CT
4. Complying with the Arm's Length Principle and Transfer Pricing documentation
5. Ensuring non-qualifying revenues do not exceed the de-minimis requirements
6. Preparing audited Financial Statements in accordance with the law
7. Meeting any other conditions that may be prescribed by the Minister

Meeting all these conditions from 'day one' is critical. Non-adherence to any of the conditions could result in the loss of the benefit not only for that year but also for the subsequent four years, even if all conditions are fulfilled thereafter.

Key takeaways

As we move closer to the end of 2023, UAE Free Zone persons with first tax periods starting on or after January 1, 2024, should prioritize examining their businesses to ensure eligibility for the preferential regime (i.e., a 0% corporate tax rate) wherever applicable.

Pre-assessment and planning are of significant importance to ensure that from 'day one' all the conditions are met. It takes time to implement any restructuring exercise, undertake any process correction, organize resources, evaluate pros and cons, and so on.

Some steps may be more important and urgent than others for ensuring compliance from 'day one,' and identifying those steps and taking timely action will be key to safeguarding a 0% benefit.