Free Zone Qualification Requirements UAE

Free Zones offer significant tax benefits, but these advantages are available only to businesses that meet Qualifying Freezone Person Criteria, including proper substance, audited accounts, compliant activities, and adherence to local regulations and reporting rules requirements.
Free Zones in the UAE are designed to attract investors and support long-term business growth. They offer strong incentives, including reduced taxes and simplified regulations. However, these benefits are closely linked to compliance. Businesses must meet clear rules to enjoy the 0% corporate tax benefit under UAE Corporate Tax law.
With the introduction of corporate tax, Free Zone companies are now under closer review. Authorities focus on real operations, proper management, and accurate reporting. Companies that fail to meet the required conditions may lose their tax benefits and face standard tax rates.

Key Conditions to Maintain Free Zone Qualification

To remain qualified, a Free Zone business must meet several requirements. These conditions focus on substance, activity, and compliance.
1. Registration and Operation in an Approved Free Zone
The company must be registered in a recognized Free Zone and operate from there. A license alone is not enough. Real business activity must take place within the Free Zone.
2. Conduct of Qualifying Activities
Only specific activities are allowed under the Free Zone rules. These activities are listed by authorities and may vary by Free Zone. Income from non-qualifying activities can affect tax status.
3. Economic Substance in the Free Zone
The company must show real presence. This includes office space, employees, and decision-making inside the Free Zone. Shell companies or paper entities may fail this test.
4. Transfer Pricing Compliance
If the company deals with related parties, it must follow transfer pricing rules. Prices must reflect market value. Proper documents must be prepared and kept ready for review.
5. Annual Reporting and Audit
A Free Zone company must submit annual financial statements and tax filings on time. Audited accounts are often required. Delays or errors can lead to penalties and loss of benefits.

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