The UAE has numerous Free Zones across all its emirates. When it comes to UAE Corporate Tax, a key distinction is made between a "Free Zone" and a "Designated Zone". This distinction is especially relevant for businesses aiming for the 0% Corporate Tax rate.
Here's a breakdown:
Free Zones (General): The UAE has over 40 free zones. These are special economic areas designed to promote foreign investment by offering benefits like 100% foreign ownership, 100% import/export tax exemptions, and full repatriation of capital and profits. Historically, many also offered corporate tax exemptions.
Designated Zones (Specific for VAT & Corporate Tax): These are a subset of Free Zones that meet specific additional criteria set by the UAE Cabinet and the Federal Tax Authority (FTA). They are treated as outside the UAE territory for VAT purposes for the movement of goods, and this distinction is crucial for certain Corporate Tax benefits as well.
For a Free Zone to be classified as a "Designated Zone," it generally must:
Be a fenced geographical area.
Have its own security measures and customs controls to monitor goods and people moving in and out.
Have well-defined procedures for storing, retrieving, and processing goods.
The operator of the zone must comply with all FTA rules and regulations.
Why the "Designated Zone" list is important for Corporate Tax:
Under the new UAE Corporate Tax Law, a "Qualifying Free Zone Person" (QFZP) can benefit from a 0% Corporate Tax rate on its "Qualifying Income." One of the conditions for certain activities to be considered "Qualifying Income," particularly related to the "distribution of goods," is that the activity must be undertaken in or from a Designated Zone.
This means that while all Free Zones offer certain benefits, for specific corporate tax exemptions related to certain activities, being located in a Designated Zone is a key requirement.
Official List of Designated Zones for VAT (and by extension, relevant for CT):
The specific list of Designated Zones is typically published by the UAE Cabinet. While the list can be subject to updates, the common and widely recognized Designated Zones (as per Federal Decree-Law No. 8 of 2017 on VAT and related Cabinet Decisions) include, but are not limited to, the following prominent ones across the Emirates:
In Abu Dhabi:
Free Trade Zone of Khalifa Port
Abu Dhabi Airport Free Zone
Khalifa Industrial Zone (KIZAD)
Al Ain International Airport Free Zone
Al Butain International Airport Free Zone
In Dubai:
Jebel Ali Free Zone (JAFZA) (North-South)
Dubai Cars and Automotive Zone (DUCAMZ)
Dubai Textile City
Free Zone Area in Al Quoz
Free Zone Area in Al Qusais
Dubai Aviation City
Dubai Airport Free Zone (DAFZA)
International Humanitarian City – Jebel Ali
In Sharjah:
In Ajman:
In Umm Al Quwain:
In Ras Al Khaimah:
In Fujairah:
Important Considerations:
This list primarily refers to their status for VAT purposes, which then has implications for Corporate Tax. Not all Free Zones are Designated Zones.
The criteria for Qualifying Free Zone Person (QFZP) status are complex and go beyond just being in a Designated Zone. They also require "adequate substance," "qualifying income," compliance with "arm's length principles," maintaining audited financial statements, and meeting "de minimis" requirements (meaning non-qualifying income must be very small).
Always verify with the specific Free Zone Authority you are interested in, and consult with a tax professional, to confirm its current status (Free Zone vs. Designated Zone) and how it specifically applies to your business activities under the UAE Corporate Tax Law. The regulations are continuously evolving.
Imagine all Free Zones are special business parks.
A "Normal Free Zone" is like a regular business park where you get special benefits, but if you send goods from your office in this park to a shop in the city, you still need to follow the usual shopping tax rules (VAT) for those goods.
A "Designated Zone" is like a super-secure, fenced-off business park right next to the airport or port with its own customs checkpoint. If you move goods into this super-secure park, or between another similar super-secure park, it's almost like the goods haven't officially entered or left the main country for tax purposes yet. This specific "customs-controlled" nature makes it unique for VAT on goods and allows certain goods-related businesses there to get the 0% Corporate Tax rate.
This distinction is very important for businesses, especially those dealing with the import, storage, and re-export or distribution of physical goods. Always consult with a tax professional for specific advice tailored to your business activities.
Comments