Free Zones Exempt from UAE Corporate Tax 

Entities meeting the requirements in the UAE’s economic free zones and involved in exporting goods to neighboring countries will now be subject to a 0% tax rate. This applies even to activities such as manufacturing, goods processing and logistics services in their dealings with the mainland. According to the Ministry of Finance, the tax regime aims to promote the growth of strategic sectors and maintain the UAE’s attractiveness as a business destination.

Free Zone Tax Regime for Strategic Sectors

The free zone corporate tax regime applies exclusively within the designated free zones. Therefore, businesses are advised to contact the respective free zone authorities to confirm eligibility. The ‘qualifying activities’ covered by the free zones corporate tax regime encompass various sectors. These activities include manufacturing goods or materials, processing goods, holding shares and securities, owning and operating ships, fund management services, wealth and investment management services.

Additionally, qualifying activities encompass services provided by headquarters to related parties, treasury and financing services offered to related parties, financing and leasing of aircraft, logistics services, as well as distributions within or from a designated zone that meet the relevant conditions, along with any ancillary activities related to these.

UAE Corporate Tax Law

The UAE has implemented a corporate tax law to comply with new international standards and align with the global minimum tax on multinational corporations supported by the G20 countries in 2021. This law imposes a 9 percent tax rate on certain businesses with income exceeding AED 375,000 (USD102,000). The introduction of a federal levy on corporate earnings in January 2022 marked a shift from the UAE’s tax-free regime. 

Tax Exemptions in UAE’s Corporate Law

The authorities have also decided to waive the requirement of corporate tax registration for non-resident individuals who earn income sourced solely in the UAE and do not have a permanent establishment within the country.

Furthermore, the government is granting exemptions from corporate tax to existing free zone entities, recognizing their role as key contributors to the non-oil economy. Additionally, public benefit entities that make significant contributions to societal welfare are also eligible for tax exemptions under the country’s corporate tax legislation.

In addition, the Ministry of Finance has introduced a new ministerial decision regarding Small Business Relief, allowing small businesses with revenues of AED 3 million (USD 816,880) or less to claim tax relief in tax periods where their revenue remains below a certain threshold. The implementation of corporate tax marks a noteworthy change for a country that has long attracted global businesses due to its status as a tax-free business hub.

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