Corporate tax: UAE exempts free zones from business tax

UAE has rolled out its corporate tax, with businesses operating in free zones exempted from the 9 per cent business tax to further promote the country’s attractiveness in strategic sectors.

The Ministry of Finance said qualifying entities in the country’s economic free zones – which export tens of billions of dollars of goods to neighbouring states – will be subject to a 0 per cent rate, even when dealing with the mainland on certain strategic activities such as manufacturing, goods processing and logistics services.

“The Free Zone Corporate Tax regime applies to ‘Free Zone Persons’, which refers to a juridical person that is incorporated or otherwise formed or registered in a Free Zone,” the ministry said post the media briefing.

The UAE Ministry of Finance has released two new decisions that together specify the main features of the Corporate Tax regime as it applies to juridical persons operating out of free zones in the UAE. These include Cabinet Decision No. 55 of 2023 on Determining Qualifying… pic.twitter.com/kQZ5uf66vJ

— وزارة المالية | الإمارات (@MOFUAE) June 1, 2023

The free zone corporate tax regime is applicable only within the prescribed free zones and the ministry urged businesses to contact the Free Zone Authority to confirm whether the free zones they operate from are eligible for the 0 per cent rate.

“The regime has been designed to ensure strategic sectors will thrive in the free zones. Some level of migration may happen but the overall objective is ensuring the UAE remains attractive,” Shabana Begum, executive director of – tax policy sector at the UAE Ministry of Finance told the media.

The government said ‘qualifying activities’ listed in the free zones corporate tax regime includes include manufacturing of goods or materials, processing of goods or materials, holding of shares and other securities, ownership, management, and operation of ships, fund management services, and wealth and investment management services.

Qualifying activities also include services provided by headquarters to related parties, treasury and financing services provided to related parties, the financing and leasing of aircraft, logistics services as well as distributions in or from a designated zone that meet the relevant conditions and any ancillary activities related to these.

UAE corporate tax

Meanwhile, the UAE’s corporate tax law – which levies a headline 9 per cent rate on income of certain businesses that exceed $102,000 (Dhs375,000) – is part of the country’s broader strategies that are aimed at aligning the Gulf state with new international standards.

It also aligns with a global minimum tax on multinational corporations endorsed by the G20 countries in 2021.

The UAE announced that it will impose a federal levy on corporate earnings in January 2022, dismantling a tax-free regime that’s made it a magnet for global business.

The Arab world’s second-biggest economy has unveiled a raft of measures ahead of the introduction of corporate tax. Earlier in April, the UAE said government entities, government-controlled entities, as well as extractive businesses and non-extractive natural resource businesses that meet the necessary conditions under the corporate tax law will be exempted from tax and not required to register.

Similarly, the authority is exempting non-resident persons from registering for corporate tax if they “only” earn UAE-sourced income and do not have a permanent establishment in the country.

The government is also exempting existing free zone entities from corporate tax as they are among the drivers of the country’s non-oil economy. The UAE said public benefit entities that contribute to the welfare of society are eligible also for tax exemptions under the country’s corporate tax law.

The Ministry of Finance also issued a new ministerial decision on Small Business Relief, allowing small businesses with revenues of $816,880 (Dhs3m) or less to claim tax relief in a tax period when their revenue does not exceed a certain threshold.

The corporate tax represents a significant shift for a country that’s long attracted businesses from around the world, thanks to its status as a tax-free business hub.

Read: Corporate Tax: MoF issues 3 new decisions, includes rules for determining taxable income