Taxation of businesses in the UAE's free economic zones

The United Arab Emirates is an attractive hub for international business. It offers many advantages, including the presence of free economic zones. However, understanding the tax laws in these zones is critical to running a successful business. Although full tax exemption is often advertised, the reality is somewhat more complex and depends on the specifics of the company's activities. Let's take a look at the main aspects of taxation for businesses registered in the UAE.

1. Value Added Tax (VAT): 5% with exceptions

The standard VAT rate in the UAE is 5%. However, there is an important caveat regarding the so-called Designated Zones within the free zones. These zones offer the possibility of VAT exemption under certain conditions. The specific requirements for activities that qualify for exemption are determined by law and may vary depending on the FEZ and the type of business. Obtaining such an exemption requires a thorough study of the legislation and consultation with specialists in this field. It is important to understand that not all activities within the FEZ are eligible for this exemption.

2. Corporate tax: 9% and the concept of QFZP

Unlike VAT, corporate tax exemption in SEZs is not standard practice. The corporate tax rate is 9%. However, there are exceptions related to the concept of Qualifying Free Zone Person (QFZP).

Companies with QFZP status are eligible for preferential taxation. To obtain this status, certain criteria established by UAE law must be met. These criteria are often related to qualifying activities.

The law classifies the activities of companies in FEZs into three categories:

Qualifying activities are activities that meet the requirements for obtaining QFZP status and, as a result, preferential taxation. The list of such activities is defined by law and is subject to change.

Excluded activities are activities that are explicitly excluded from eligibility for benefits and are subject to standard taxation.

Other activities are activities that do not fall under any of the above categories and require detailed analysis for qualification.

Obtaining QFZP status is a complex process that requires a deep understanding of the law and a thorough analysis of the company's activities. Incorrect qualification can lead to additional tax liabilities and penalties.

The UAE's tax legislation for businesses has its own peculiarities and nuances. Simply referring to it as a “tax haven” is an oversimplification. To successfully conduct business and minimize tax risks, it is extremely important to seek professional advice from tax specialists in the UAE. They will help determine the status of the company, correctly classify the types of activities, and ensure full compliance with the law, which will avoid financial losses and problems with the tax authorities. Sign up for a free consultation with an Openbiz lawyer and learn more about all the features of the tax system in the UAE.

Get a free consultation
with an individual analysis of your situation

By clicking on the "Get a consultation" button, you agree to the Privacy Policy

Might be interesting:

«Legal and accounting services in UAE»

BUSINESS SERVICES

PERSONAL SERVICES