Hire uae corporate tax consultant 

What is the Corporate Tax in the UAE?

Corporate tax is a form of direct tax levied on the net income or profit of businesses. In the UAE, corporate tax was introduced to diversify government revenue sources and align the country with global tax standards. The corporate tax regime in the UAE came into effect in June 2023, marking a significant shift in the country's business landscape.

Do Companies Have to Pay Tax in the UAE?

Yes, most companies in the UAE are now required to pay corporate tax. This applies to both local businesses and branches of foreign companies operating in the UAE. However, there are some exemptions based on specific categories of income and the location of business activities, particularly in Free Zones.

Companies operating in mainland UAE are subject to the new corporate tax system, which taxes their profits. Businesses operating in Free Zones, however, enjoy special tax benefits, provided they meet certain conditions.

What is the Corporate Tax Rate for Free Zones in the UAE?

Free Zones in the UAE have been designed to attract international businesses by offering various benefits, including tax incentives. The UAE government allows Free Zone companies to benefit from a 0% corporate tax rate on qualifying income. However, it is important to note that Free Zone companies must adhere to specific requirements to qualify for this tax relief, such as not conducting business with mainland UAE or ensuring that their income falls within qualifying income categories.

For non-qualifying income (e.g., income earned from activities with mainland UAE), the corporate tax rate may rise to 9%, similar to that applied to mainland businesses.

What is Qualifying Income in UAE Corporate Tax?

Qualifying income is a key concept for companies operating in Free Zones that wish to maintain their 0% corporate tax status. The UAE Ministry of Finance has provided guidelines that define what constitutes qualifying income. Generally, qualifying income refers to revenue generated from activities conducted outside mainland UAE or within the Free Zones.

Examples of qualifying income may include:

• Revenue generated from international sales or services.
• Intra-Free Zone transactions.
• Income earned from holding and managing intellectual property (IP).

However, if a Free Zone business conducts business with mainland UAE or derives income from non-qualifying activities, that portion of their income will likely be subject to the standard 9% corporate tax.

In summary, while the UAE has implemented a corporate tax system, Free Zones remain an attractive option for businesses looking to minimize their tax liability through the 0% rate on qualifying income. Companies must ensure they meet the criteria for qualifying income to take advantage of this benefit.