You always look into disbelieving faces when you explain to Dubai newcomers that they will not be subjected to tax in Dubai or the entire United Arab Emirates (UAE), and that there is no income tax or other taxes for private individuals.
There is currently no income tax, inheritance tax, withholding tax or anything similar. A corporate tax of 9% was introduced for companies in June 2023. However, small to medium-sized Freezone companies can qualify for 100% tax exemption.
There is no income tax or other comparable private taxes in Dubai and, according to the authorities, these are not planned. It doesn't matter how you earn your money, whether with stocks, through rental income or even through trading crypto currencies, there will be 0% tax for you..
All private income in the UAE is 100% tax-free, provided, that you hold a UAE Residence Visa and no longer have an official place of residence outside the UAE.
In 2018, a VAT of 5% was introduced, but of course this ultimately only affects end consumers and is just a pass-through item for (local) companies. Companies are also only obliged to add VAT on their invoices, if their annual turnover exceeds the equivalent of around 90,000 euros. Only from this point on does the company in question have to register for value added tax (VAT).
Value added tax (VAT) is generally only to be charged for national transactions, i.e. invoices to international customers (cross-border) are not affected.
Even though the UAE introduced a corporate tax in August 2023 of 9%, most SMEs are still in luck and will be able to stay completely TAX-FREE as long as they fulfill 2 scenarios.
Despite the introduction of the corporate tax, there is still no comparison to other countries as there is NO income tax at all in the UAE. Bookkeeping and accounting will be very simple and hassle free and it will be easy for most SMEs to stay below the threshold of AED 375,000 (salaries, dividends,etc).
None of the Corporate Tax Law, the implementing regulations or the Ministerial Decision clarifies yet on Freezones and their tax regulations. We are still awaiting further clarity on what will be considered Qualifying Income or Qualifiying Freezones.
Corporate Tax Registration
All companies, regardless of their operating model (free zone/mainland), must do corporate tax registration.
Bookkeeping and Accounting Requirements
This is now mandatory for all companies to keep proper accounting records, regardless of whether they pay corporate tax or enjoy exempt status.
Corporate Tax Return
Tax reporting is mandatory for all companies, regardless of their status as an active or tax-exempt corporation.
Relief for Small Businesses
Any company that has an annual turnover of AED 3 million or less has the option to apply for corporate tax exemption until 2026 if the turnover remains below AED 3 million. However, the corporate tax return must be submitted annually.
Examination Requirements
A taxable individual with income exceeding AED 50 million and qualifying Freezone firms are required to submit audited financial reports with their corporate tax return and this may be required by the Authority at any time
Exemption Limit for Corporate Tax
0% on net winnings below AED 375,000. 9% on net winnings over AED 375,000
Freezone Treatment
Qualifying income activities in a qualifying free zone are subject to 0% corporate income tax. There is a complete list of available qualifying activities including manufacturing of goods, ownership of vessels, distribution, services, logistics, etc
Qualifying Free Zones
There is currently only no list of qualifying free zones available. The Ministry has given this option to Freezone authorities, regardless of whether they wish to claim qualifying Freezone status. This can be checked at any time with the responsible authority of each Freezone.
What is the Free Zone Corporate Tax regime?
The Free Zone Corporate Tax regime is a form of UAE Corporate Tax relief which enables Free Zone companies and branches that meet certain conditions to benefit from a preferential 0% Corporate Tax rate on income from qualifying activities and transactions.
Why has the UAE introduced a Free Zone Corporate Tax regime?
Free zones are an integral part of the UAE economy that continue to play a critical role in driving economic growth and transformation both in the UAE and internationally. In recognition of their continued importance and the tax related commitments that were made at the time Free Zone were established, Free Zone companies and branches that meet certain conditions can continue to benefit from 0% corporate taxation on income from qualifying activities and transactions.
Who is a Free Zone Person?
A Free Zone Person is a legal entity that is incorporated or established under the rules and regulations of a Free Zone, or a branch of a mainland UAE or foreign legal entity that is registered in a Free Zone. A foreign company that transfers its place of incorporation to a Free Zone in the UAE would also be considered a Free Zone Person.
The Free Zone Corporate Tax regime is available only to Free Zone Persons, and this term is also used to determine what income can benefit from the regime by treating income from transactions with other Free Zone Persons as Qualifying Income.
Who is a Qualifying Free Zone Person?
A Qualifying Free Zone Person is a Free Zone Person that meets all the conditions of the Free Zone Corporate Tax regime and hence benefits from that regime.
The conditions of the Free Zone Corporate Tax Regime require a Qualifying Free Zone Person to:
maintain adequate substance in a Free Zone;
derive Qualifying Income;
not have made an election to be subject to the regular UAE Corporate Tax regime;
comply with arm’s length principle and transfer pricing rules and documentation requirements;
prepare and maintain audited financial statements
Failure to meet any of the conditions results in a Qualifying Free Zone Person losing its qualifying status and not being able to benefit from the Free Zone Corporate Tax regime for five Tax Periods.
The Free Zone Corporate Tax regime is available only to Free Zone Persons, and this term is also used to determine what income can benefit from the regime by treating income from transactions with other Free Zone Persons as Qualifying Income.
How are Qualifying Free Zone Persons taxed under the UAE Corporate Tax regime?
Qualifying Free Zone Persons are subject to a 0% Corporate Tax rate on their taxable income from Qualifying Activities and transactions with other Free Zone Persons, unless the income is derived from an Excluded Activity.
Where a Qualifying Free Zone Person operates outside of a Free Zone through a Permanent Establishment in the mainland UAE or in a foreign country, the profits attributable to such Permanent Establishment will be subject to the UAE Corporate Tax rate of 9%.
To prevent foreign Permanent Establishment profits being taxed twice, both in the UAE and in a foreign country, relief from Corporate Tax is available under the extensive double tax treaty network of the UAE and as indicated under the UAE Corporate Tax Law.
Certain income from Immovable Property in a Free Zone is also subject to the 9% Corporate Tax rate. This applies to income from transactions with non-Free Zone Persons in respect of Commercial Property and to income derived from residential units, hotels and other Immovable Property that is not Commercial Property regardless of who the payor is.
“Commercial Property” is Immovable Property located in a Free Zone that is used exclusively for a Business or Business Activity and that is not used as a place of residence or accommodation.
Immovable Property means “Anything which is settled and fixed in its space and cannot be moved without deterioration or alteration of its shape.” (Article 101 of the Civil Transactions Law).
Will the same conditions apply to all Free Zones and Qualifying Free Zone Persons?
The conditions of the Free Zone Corporate Tax regime are set under the Corporate Tax Law and apply uniformly across all Free Zones in the UAE. This means that the conditions for being a Qualifying Free Zone Person and benefiting from the Free Zone Corporate Tax regime are the same, irrespective of the Free Zone in which the Free Zone Person is established or registered.
Finally, it can be said that by setting up a company in Dubai and emigrating to Dubai at the same time, you can really live 100% tax-free. If you set up the company in the Dubai Freezone and qualify for 0% taxes here, then you will not be affected by corporate tax in the future.
