yes we can always have an office anywhere, no restriction. likewise freezone could always do business with mainland but with penalties
UAE clarification of Freezone Qualifying Income
- Thread starter joffreylol
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"Why would they need to provide a list of minimum activities︀ that free zones can conduct worldwide when these activities can already be carried out without︁ paying corporate tax (CT) in all free zones in Dubai? Let's not forget that these︂ free zones are located within the Emirates."
Possibly because if funds are received from another︃ free zone in the UAE, those companies would have already been taxed for activities that︄ are not exempt from tax (meaning exports are taxed except qualifying activities).
The UAE is︅ now considered a blacklisted country (even if in real there is a very limited impact︆ on international transactions), and even though it is legitimate and interesting to protect the owners︇ of free zones from taxation, it would be beneficial in the long run to include︈ international transactions in this move to support the country's growth. Why export from mainland would︉ be taxed and not those from Freezone ?
Why Marketing services owned by a mainland︊ company, for some of them with citizens as shareholders (rich and smart people), will accept︋ that a foreigner get any commercial advantage right 100 meters away from their office operating︌ from Freezone ?
By adhering to these international standards, Dubai demonstrates its willingness to cooperate︍ with the international community and play a responsible role in global financial affairs.
My own point of view -
You are︉ not taking in consideration global economy aspect and even if I would love to believe︊ in yours for tax optimization purpose which I am also concerned - that would be︋ a "focusing on short term profit and close your eyes on reality for a few︌ months" and not considered where we are going" approach. People who setup in UAE are︍ part of an economy and I think it's legitimate to explain to them that yes,︎ UAE now is a taxation country, yes things will change, yes it has bad and️ good sides.
Possibly because if funds are received from another︃ free zone in the UAE, those companies would have already been taxed for activities that︄ are not exempt from tax (meaning exports are taxed except qualifying activities).
The UAE is︅ now considered a blacklisted country (even if in real there is a very limited impact︆ on international transactions), and even though it is legitimate and interesting to protect the owners︇ of free zones from taxation, it would be beneficial in the long run to include︈ international transactions in this move to support the country's growth. Why export from mainland would︉ be taxed and not those from Freezone ?
Why Marketing services owned by a mainland︊ company, for some of them with citizens as shareholders (rich and smart people), will accept︋ that a foreigner get any commercial advantage right 100 meters away from their office operating︌ from Freezone ?
By adhering to these international standards, Dubai demonstrates its willingness to cooperate︍ with the international community and play a responsible role in global financial affairs.
- This move︎ can show the world that it is no longer acceptable to avoid high taxation simply️ by invoicing through free zones.
- The biggest consulting firms (PwC, Deloitte, KPMG, EY) currently maintain that free zones should be taxed as if they were mainland operations.
- Qualifying income definition :
Income derived from transactions with other Free Zone Persons, except for income derived from Excluded Activities.︁
- Easy understanding - as previously said - all activities except excluded = important to highlight︂ business with individuals (BtoC) - so restaurant, salon, marketing services are subject to CT.︃
- How are you planning to manage your de minimis requirement by limiting your clients' cash︄ payments to no more than 5%? Do you see this target as a means to︅ combat money laundering and make it more difficult for cash to be reinvested in the︆ local economy? Could this measure be aimed at supporting the growth of the UAE, particularly︇ the real estate market, rather than merely showcasing the UAE's efforts to adhere to international︈ rules and become a major business hub?
My own point of view -
You are︉ not taking in consideration global economy aspect and even if I would love to believe︊ in yours for tax optimization purpose which I am also concerned - that would be︋ a "focusing on short term profit and close your eyes on reality for a few︌ months" and not considered where we are going" approach. People who setup in UAE are︍ part of an economy and I think it's legitimate to explain to them that yes,︎ UAE now is a taxation country, yes things will change, yes it has bad and️ good sides.
The blog︄ post of Meydan was written a month and half ago before the new publication of︅ gouvernment regarding clarification of Qualifying freezone Person.
The second one is certainly written by a︆ corporate services provider which looks like someone who watched 20 min Youtube clip on what︇ is Corporate tax and try to rassure audience there is no tax. It is not︈ reliable we are here to speak with expertise to get real conclusion.
VZ employed one︉ Chartered accountant which is getting in troubles understanding SMB (Small business Relief), such as defined︊ into law - it is clearly specified that you can ask for it if your︋ previous exercice((s) WITH AN S)) are valid. Means by law - it could be available︌ only in 2026 for people which can shows more than one year being covered by︍ revenu not exceeding 3M AED.
Only statement from VZ are some videos to promote administrative︎ management tasks such as accounting.
Do you know definition of Offshore company ? An offshore️ company is a company you own without being resident in the juridiction. By definition, if you are Italian resident and own a company in Belgium, this is an Offshore company.
You seems put Offshore company statut to RAKICC such as there are "special" powers. Those structures were mainly used and known because of very cheap cost of maintaining. Because of big troubles, notably with Dubai's papers, 100% of those companies which are involve in commercial operations are totally blacklisted of banking world in UAE.
Only chance to get a bank account with "offshores" nowadays - means without being resident - is to use them only︀ to hold asset (real estate for instance).
I believe you are making a confusion about︁ "Offshore" statut.
So to conclude, your offshore company (which you're not resident) should be taxed︂ in the country she is managed. IF she is managed from inside UAE, means there︃ is a employment as Director in the Company and indirectly means there is Residence Visa,︄ and so substance. If there is substance, this company is not offshore anymore and seen︅ as a regular Freezone now.
I might be wrong please any others voices to assist︆ with this important topic ?
The second one is certainly written by a︆ corporate services provider which looks like someone who watched 20 min Youtube clip on what︇ is Corporate tax and try to rassure audience there is no tax. It is not︈ reliable we are here to speak with expertise to get real conclusion.
VZ employed one︉ Chartered accountant which is getting in troubles understanding SMB (Small business Relief), such as defined︊ into law - it is clearly specified that you can ask for it if your︋ previous exercice((s) WITH AN S)) are valid. Means by law - it could be available︌ only in 2026 for people which can shows more than one year being covered by︍ revenu not exceeding 3M AED.
Only statement from VZ are some videos to promote administrative︎ management tasks such as accounting.
Do you know definition of Offshore company ? An offshore️ company is a company you own without being resident in the juridiction. By definition, if you are Italian resident and own a company in Belgium, this is an Offshore company.
You seems put Offshore company statut to RAKICC such as there are "special" powers. Those structures were mainly used and known because of very cheap cost of maintaining. Because of big troubles, notably with Dubai's papers, 100% of those companies which are involve in commercial operations are totally blacklisted of banking world in UAE.
Only chance to get a bank account with "offshores" nowadays - means without being resident - is to use them only︀ to hold asset (real estate for instance).
I believe you are making a confusion about︁ "Offshore" statut.
So to conclude, your offshore company (which you're not resident) should be taxed︂ in the country she is managed. IF she is managed from inside UAE, means there︃ is a employment as Director in the Company and indirectly means there is Residence Visa,︄ and so substance. If there is substance, this company is not offshore anymore and seen︅ as a regular Freezone now.
I might be wrong please any others voices to assist︆ with this important topic ?
Beside of that we have covered this in our latest blog article with Point 4. here:
https://dls-dubai.com/en/99-of-freezone-companies-formed-by-dls-dubai-remain-0-corporate-tax-why/
Instead of just setting up a Dubai Freezone Company to get the Residence Visa and leave︀ it inactive - this Freezone Company could be your Holding Company.
There is - beside︁ of the fact that you are not able to open a useful local UAE Bank︂ Account for a RAK ICC - literally no reason to setup a RAK ICC as︃ they are falling under the Corporate Tax Filling same like every other company.
The only︄ reason we can think of using a RAK ICC is as part of a RAK︅ ICC Foundation structure if someone wants to avoid more transparent Public Registry which the DIFC︆ and ADGM has in place.
Freezone Company for Visa and another Holding Company is just︇ unnecessary costs - no client benefits from - only the Company making the Setup -︈ Freezone Holding Company acts as Residence Visa Sponsor and can act as shareholder of Active︉ Trading Companies overseas - potentially at a later stage when really necessary the shares of︊ the Freezone Holding Company can be transfered to a RAK ICC Foundation with less transparency︋ compared to DIFC / ADGM.
https://dls-dubai.com/en/99-of-freezone-companies-formed-by-dls-dubai-remain-0-corporate-tax-why/
Instead of just setting up a Dubai Freezone Company to get the Residence Visa and leave︀ it inactive - this Freezone Company could be your Holding Company.
There is - beside︁ of the fact that you are not able to open a useful local UAE Bank︂ Account for a RAK ICC - literally no reason to setup a RAK ICC as︃ they are falling under the Corporate Tax Filling same like every other company.
The only︄ reason we can think of using a RAK ICC is as part of a RAK︅ ICC Foundation structure if someone wants to avoid more transparent Public Registry which the DIFC︆ and ADGM has in place.
Freezone Company for Visa and another Holding Company is just︇ unnecessary costs - no client benefits from - only the Company making the Setup -︈ Freezone Holding Company acts as Residence Visa Sponsor and can act as shareholder of Active︉ Trading Companies overseas - potentially at a later stage when really necessary the shares of︊ the Freezone Holding Company can be transfered to a RAK ICC Foundation with less transparency︋ compared to DIFC / ADGM.
You are wrong. Reason 1 you mentioned above. Offshore means outside︀ jurisidiction where the management and control resides. So Jebel Ali offshore, is onshore when you︁ manage and control that from UAE. This is what the new tax law says in︂ line with OECD. An offshore company controlled and managed from UK would be resident in︃ UK and offshore not tax resident of the UAE. The company moves with the tax︄ residence of where the ultimate management and control is exercised.
You say "
Thats what the statute says in its relevant law.︇ 9% tax on mainland companies on your profit;. It does not say Terrotorial or exemption︈ for "foreign clients"
You say;p
Wrong, it does not say that. Mainland companies have no exemptions - read the relevant︍ law. It clearly states "qualifying freezone companies " in regards to "qualifying activities" it has︎ no geographical restriction or further information on this.
@alessio was alluding to the above alrready️ correctly.
I do not understand why people keep imagining facts not in existence or bend the truth in such a way it is ridicilous. At least @Fred gives two options, either you agree or disagree and have scenarios in both. Unfortunately until we know the exact effect of complaince, enforcement, with cases in front of judges it will be very much just as what the law says. Freezones are irrelevant unless you do qualifying activities - which is my opinion based on all available information right now. Still you can use it for a good amount of taxfree income.
nice scenario and yes you could, but lets ignore GAAP and transferpricing and artificial structures of tax avoidance. Technically not passing many tests, but enforcement lacking for small numbers. Again also the reason EU came down hard - they cant keep the tap open , draining money to tax free zones and abuse like you mentioned above
You say "
Thats what the statute says in its relevant law.︇ 9% tax on mainland companies on your profit;. It does not say Terrotorial or exemption︈ for "foreign clients"
You say;p
Wrong, it does not say that. Mainland companies have no exemptions - read the relevant︍ law. It clearly states "qualifying freezone companies " in regards to "qualifying activities" it has︎ no geographical restriction or further information on this.
@alessio was alluding to the above alrready️ correctly.
I do not understand why people keep imagining facts not in existence or bend the truth in such a way it is ridicilous. At least @Fred gives two options, either you agree or disagree and have scenarios in both. Unfortunately until we know the exact effect of complaince, enforcement, with cases in front of judges it will be very much just as what the law says. Freezones are irrelevant unless you do qualifying activities - which is my opinion based on all available information right now. Still you can use it for a good amount of taxfree income.
nice scenario and yes you could, but lets ignore GAAP and transferpricing and artificial structures of tax avoidance. Technically not passing many tests, but enforcement lacking for small numbers. Again also the reason EU came down hard - they cant keep the tap open , draining money to tax free zones and abuse like you mentioned above
Instead of drafting a legislation saying that all the economic activities are liable for 9% CIT, except the following cases 1,2,3,4 etc, the UAE rule drafters made a big mess with qualifying, non-qualifying and excluded activities... Completely stupid. On another note, because of the previous 0% tax rate the clients have no international planning expertise, by far the majority (looking at the number of companies they serve not their income) of accountants have no international tax expertise, the majority of the auditors have no international tax experience, the tax authorities have no real international expertise and the government bureaucrats also have limited international tax planning︀ expertise. What a huge mess it is - especially for tax enforcment...
I am very︁ much afraid of committing a genuine tax mistake in the UAE - lack of the︂ rule of law practice makes it quite dangerous to operate with any entities. That is︃ my biggest problem
I am very︁ much afraid of committing a genuine tax mistake in the UAE - lack of the︂ rule of law practice makes it quite dangerous to operate with any entities. That is︃ my biggest problem
Sure you can do that, but then you have to pay tax for that company in Portugal.
That has always been my biggest issue with the︀ UAE. I canceled everything before June to avoid this mess. Now I can watch it︁ from the sideline and see how things develop.
That has always been my biggest issue with the︀ UAE. I canceled everything before June to avoid this mess. Now I can watch it︁ from the sideline and see how things develop.
did anyone notice that excluded activity is
does this mean if you have clients that are natural persons, or they pay you from their personal account it is considered excluded activity?
so pretty much B2C can't be taxed with 0% tax?
does this mean if you have clients that are natural persons, or they pay you from their personal account it is considered excluded activity?
so pretty much B2C can't be taxed with 0% tax?
Depends on whether they meant "UAE natural persons" or "any natural persons globally".
The common sense says "UAE persons", but there is no clarity in this matter.
The common sense says "UAE persons", but there is no clarity in this matter.
I understand this and I'm not a fan of it either but to be honest it's in every more or less developed country the procedure.
No matter if democratic country or modern dictatorship - the fundament is set by the relevant Minister Department or Parliament and the responsible Authority takes it from there.
No matter if democratic country or modern dictatorship - the fundament is set by the relevant Minister Department or Parliament and the responsible Authority takes it from there.
According to this : https://mof.gov.ae/wp-content/uploads/2023/05/FINAL-CT-Guide-English-12.5.23.pdf
A “natural person” means an individual or individuals. As discussed above, natural persons would only besubject to Corporate Tax insofar as they conduct a Business or Business Activity in the UAE.For certain types of Business Activities, natural persons can form a sole establishment or a civil company. For Corporate Tax purposes, these entities will be disregarded and treated as the natural person or persons owning them because of their direct relationship and control over the Business and their unlimited liability for the debts︀ and other obligations of the Business
A “natural person” means an individual or individuals. As discussed above, natural persons would only besubject to Corporate Tax insofar as they conduct a Business or Business Activity in the UAE.For certain types of Business Activities, natural persons can form a sole establishment or a civil company. For Corporate Tax purposes, these entities will be disregarded and treated as the natural person or persons owning them because of their direct relationship and control over the Business and their unlimited liability for the debts︀ and other obligations of the Business
An interesting webinar from Deloitte on corporate tax for free zones.
https://players.brightcove.net/5756059982001/default_default/index.html?videoId=6329045640112
Can't delete my above message as the timelimit has passed so providing some more information.
An interesting webinar from Deloitte on corporate tax for free zones.
Towards the end of the presentation (around ~40mins), a question is asked if the income derived by a free zone company that provides management consulting/legal services to a non-UAE company is taxable, and their answer is most likely, yes.
This seems at odd with your blog post @Fred.
"If you are not conducting Business with the UAE Mainland or have a Banking, Insurance or Finance Business︀ Activity which 99% of DLS Dubai Clients don’t have – you are not part of︁ the Excluded Business Activity List and therefore 0% Corporate Tax applies."
Not saying you're right︂ or wrong...
But I still fail to see how revenue generated by a freezone company︃ providing for instance, management consulting or IT services to a non-UAE business would not be︄ deemed taxable.
Can you enlighten me?
Also, if the case is that they're deemed taxable,︅ then it seems being treated as a mainland company must be more advantageous to get︆ small business relief.
I should add I'm grateful and assume others on here as well︇ for the information you provide.
https://players.brightcove.net/5756059982001/default_default/index.html?videoId=6329045640112
https://players.brightcove.net/5756059982001/default_default/index.html?videoId=6329045640112
Can't delete my above message as the timelimit has passed so providing some more information.
An interesting webinar from Deloitte on corporate tax for free zones.
Towards the end of the presentation (around ~40mins), a question is asked if the income derived by a free zone company that provides management consulting/legal services to a non-UAE company is taxable, and their answer is most likely, yes.
This seems at odd with your blog post @Fred.
"If you are not conducting Business with the UAE Mainland or have a Banking, Insurance or Finance Business︀ Activity which 99% of DLS Dubai Clients don’t have – you are not part of︁ the Excluded Business Activity List and therefore 0% Corporate Tax applies."
Not saying you're right︂ or wrong...
But I still fail to see how revenue generated by a freezone company︃ providing for instance, management consulting or IT services to a non-UAE business would not be︄ deemed taxable.
Can you enlighten me?
Also, if the case is that they're deemed taxable,︅ then it seems being treated as a mainland company must be more advantageous to get︆ small business relief.
I should add I'm grateful and assume others on here as well︇ for the information you provide.
https://players.brightcove.net/5756059982001/default_default/index.html?videoId=6329045640112
Deloitte has to be very careful - they would be crazy to even hint at something, which then won't come to be. They have to stick to official documents, not hopes and rumors.
I think there is absolutely nothing official at this point to support those claims by Fred. However, I think he does have a point, in that it's possible that such income will be continue to be exempt from CIT.
I think at this point, it's best to just wait for further clarification, which will come at some point. They can't just leave things this unclear forever.
As long as there is no︀ clarification, I would also assume that income from foreign clients will be subject to CIT.︁
I think there is absolutely nothing official at this point to support those claims by Fred. However, I think he does have a point, in that it's possible that such income will be continue to be exempt from CIT.
I think at this point, it's best to just wait for further clarification, which will come at some point. They can't just leave things this unclear forever.
As long as there is no︀ clarification, I would also assume that income from foreign clients will be subject to CIT.︁
I also think it's entirely possible they simple haven't decided that part yet - so they released ambiguous guidance on purpose to test the waters and postpone the decision on foreign income...
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