There are more than 50 free zones in the VAE, each of which offer considerable tax benefits, with 0% personal inome tax and power gain tax. Since June 2023, most companies have been subject to a standard corporation tax rate of 9% on taxable profit, but there are ex -mingenes. Could you benefit from this generous schedule?
Of minimalism required in the VAE corporate tax
Federal Decree-Lage No. (47) of 2022 on the tax of companies and companies made subsignan changes to the tax landscape of the VAE. The most important change, in force since June 2023, introduced the corporation tax rate of 9% for companies that are active in the VAE. This was introduced to help the VAE to speed up development and enable the region to become a leading jurisdiction for companies and investments that adhere to international standards. But this legislation made a remarkable example, namely under the minimum rule.
With the Minimis rule, sub -companies can earn a limited incoming amount that is not eligible for the special tax rate, without losing tax benefits. This is affected the ‘non-qualifying income’. It mainly applies to companies in free zones, where they are companies to get tax benefits. This allows bus fines that work in free zones to retain their status as qualifying free zone persons (QFZPs) and benefit from a rate of 0% corporation tax on income earned with specific qualifying activities.
In essence, the rule sets a limit to determine how much non-qualifying Vales a company can earn before it loses its special tax status. A QFZP can earn non-qualifying inme as long as the Eithher does not exceed 5% of the total income of the company or AED 5 million, which is lower. If the non-qualifying income exceeds this threshold, the company immediately loses its QFZP status and is no longer opted for the tax rate of 0%.
Where does the minimal requirement apply?
The minimum rule applies to companies in the VAE that are known as qualifying free zone persons (QFZPs). These are companies that have been set up in one of the designated free zones of the VAE, skirts that offer special tax benefits. To maintain this tax -free status, you must meet specific conditions:
- Digage in qualifying business activities, such as production, acting with other free zone companies or offering services to companies that are outside the VAE
- Secure for a good setup in the VAE with an office or facility. It is not Covech to be on paper.
- Follow the price rules for related companies. For example, if the company buys or sells things with other companies with which it is connected (such as parent or sister companies), the fair price rules must follow that are called “transfer prices” and keep clear data from those deals.
- Keep controlled financial statements and ensure that all financial files are assessed and signed by an approved auditor.
Sub -companies can choose to unsubscribe from the QFZP status and are taxed like any other company. If they do that, this rule no longer applies to them.
However, if a company meets these conditions, but earns too much non-qualifying income, it loses its QFZP status. This means that it can no longer enjoy the tax rate of 0% and, instead, 9% corporation tax pays inome above AED 375,000.
How to calculate the minimum threshold
If your company is an eligible free zone person (QFZP) and you want to keep the corporation tax of 0%, UU must make sure that you do not earn a lot of money from the wrong types of activities.
To ensure that you stay within the limit, you must first understand what counts as ‘non-qualifying income’. This includes:
- Earned money with activities that are excluded according to the government
- Money from deals with companies outside the free zone (such as VAE companies on the mainland).
- Money from other free zone companies that are not the real end user of the services or products.
Then you have to work out your total income, exclusively inome from parts of your company that are outside the UAE and made money from real estate in the free zone.
Your company will still be within the limit if your non-income is inome: 5% or less of your total income or AED 5 million or less (which one is smaller)
Implications of non -compliance with the minimal requirement
So what happens if you do not meet the minimal requirement?
If your non-qualifying income cross borders, your company loses tax-free status and the 9% tax starts to pay tax on AED 375,000, just like any other company.
Eleven until Business loses the QTZP status, it is disqualified for a total of five years: the current tax year plus the following four tax years. Elf is disqualified, all its income – even the income that normally qualified for the tax rate of 0% – will be taxed at 9%.
Tovoid these consequences, it is essential for business to:
- Keep a thorough data from where the money comes from
- Make sure they remain under the permitted minimal limit
- Have clear financial data
- Check regularly
By carefully managing the income of your company and keeping good data, companies can stay on the right side of the rules and keep their tax -free status as long as possible.
About Set Hub
At Set Hub we specialize in making business arrangement in Dubai simple, smooth and stress -free for new entrepreneurs and investors. Whether you start a small company or plan to launch a specialized service, it is our mission to help you get started quickly and correctly. We offer a full range of services to support each part of your journey, including business formation, visa and residence processing, arrangement of company banks and tax and accounting services.
With our local insights and expertise, navigation through the corporate tax system of the VAE and rules such as the minimal requirement is much easier. We help your company to persist, have been structured in the right way from the start, so you are not only for tax benefits, but also stay year after year. In addition to tax matters, we also help with HR and recruitment, branding and marketing, and we even help you find the right office space that meets your needs.
At Set Hub, we are not JUSP you have set up a company, we support you in building a company that thrives in Dubai’s competition and possibilities. If you are considering starting a company in Dubai, especially inside to the free zone, we will guide you with every step. Contact us today to find out more about how we can help.
