With regard to the recent public clarification by FTA,UAE, many are confused on the treatment of Tax treatment of free zone entities under corporate tax.
Firstly, Freezone entities means legal persons and their branches and not a natural person.
1. For Free zone entities,Corporate Tax is Zero rated in case of qualifying Income.
2. Qualifying income includes :
a) transactions with other free zone entities(who are beneficial owners), unless they are excluded activities.Relevant excluded activities are transactions with Natural persons,others being banking,insurance,leasing etc
b) transactions with non-freezone entities, if they are qualifying activities. Qualifying activities include Manufacturing,Processing,Trading,HQ Services (Marketing,Strategic Management etc), Distribution services, in case of goods.
3. Non qualifying income is taxed at 9%.
4. Corporate tax computation to be done after the closing of the year 2024. There are a few non deductible expenses, which will be shared soon.
5. Corporate tax is charged at 9% on the profit above the basic exemption limit of AED 375,000. But in case,there are supplies to freezone entities and availing the benefit of the ZERO rate (as per note 1), then the basic exemption limit is not available. So,it is advisable to opt to tax at standard rate (9%) if the qualifying income (Note 1) is below aed 375,000.