The UAE’s Federal Tax Authority (FTA) has released a comprehensive guide outlining how the Corporate Tax regulations apply to businesses operating in the country’s free zones.

The guide provides clarity on the conditions companies must meet to qualify for the 0 percent Corporate Tax rate on certain income streams.

The “Corporate Tax Guide for Free Zone Persons” is the latest in a series of guidance materials published by the FTA since the UAE’s Federal Corporate Tax laws came into effect last year. It addresses the unique situation of the UAE’s numerous free zones, which offer incentives like foreign ownership allowances and streamlined processes to attract businesses.

At the core of the new regulations is the definition of a “Qualifying Free Zone Person” (QFZP) – a free zone business that meets substance, reporting, and other requirements to be eligible for the 0 percent rate on “Qualifying Income” streams like manufacturing, trading, and services.

To achieve QFZP status, a free zone entity must derive income only from activities specified as “Qualifying” under the law. It must also maintain adequate assets, employees, and operating expenditures proportionate to its activities, follow transfer pricing rules, and prepare audited financial statements.

“The Free Zone Person must undertake its core income-generating activities relating
to transactions and activities benefiting from the 0 percent Corporate Tax rate on Qualifying
Income in a Free Zone (for distribution activities, this needs to be a Designated Zone),” the guide states.