The UAE’s corporate tax has changed the game for businesses, making compliance more critical than ever. While free zone companies still enjoy a 0% tax rate, it’s not automatic. The rules are stricter now, and missing even a small condition could mean losing exemptions and facing unexpected tax bills. The key takeaway? Staying informed and proactive isn’t optional—it’s a must.
For free zone companies, the benefit of 0% tax rate remains, but it comes with strings attached. To qualify, your business must be recognized as a “Qualifying Free Zone Person” and earn qualifying income from qualifying activities. This means that simply holding a free zone license is no longer enough. When filing your return, you must prove that your non-qualifying income stays within the de minimis limit—specifically, it must not exceed 5% of your total revenue. Once you cross that threshold, your income might be taxed at a flat 9%, regardless of how much of your business truly operates within the free zone. Additionally, transactions with mainland entities need to be carefully documented and classified, as any misstep could inadvertently expose you to full taxation.
Common pitfalls when filing include misclassifying revenue, overlooking tax elections, and poor record-keeping. For free zone businesses, it’s vital to clearly separate qualifying income from non-qualifying income. For mainland companies, aligning revenue recognition with the prescribed tax rules is essential. Additionally, every supporting document—from expense receipts to contractual agreements—must be in order, as the FTA can request evidence during audits. One wrong step, like incorrectly reporting related party transactions, can invite scrutiny and lead to penalties.
UAE’s corporate tax isn’t just about rates—it’s about understanding and navigating the new rules effectively. Compliance isn’t a once-a-year task; it’s an ongoing commitment. Your first return is especially important—it sets the tone for how your business will handle tax matters in the years to come. Filing your tax return isn’t just about meeting a deadline; it’s about ensuring every detail is correct to avoid unnecessary liabilities or penalties.
The bottom line is simple: Don’t just file—file it right.
Article by Shiny mascarenhas
