As the UAE begins rolling out a 9% business tax earlier on Thursday, businesses operating in free zones are exempted to further boost the country’s appeal in strategic sectors.

The UAE’s Ministry of Finance has announced that companies operating in free zones can pay 0% tax on income from certain qualifying activities and transactions.

“The regime has been designed to ensure strategic sectors will thrive in the free zones,” said Shabana Begum, Executive Director of Tax Policy Sector at the UAE Ministry of Finance. “Some level of migration may happen, but the overall objective is ensuring the UAE remains attractive.”

A qualifying company can benefit from tax exemption on qualifying income as long as it is incorporated, established, or registered in a free zone. It can also benefit from a 0% corporate tax rate on income earned from transactions with mainland UAE businesses or those in a foreign
jurisdiction.

Qualifying activities include fund, wealth, and investment management services, the manufacture and processing of goods or materials, reinsurance services, the holding of shares and other securities, and the ownership, management, and operation of ships.

Other qualifying activities include services offered by headquarters to related parties, treasury and financing services provided to related parties, the financing and leasing of aircraft (including engines and rotatable components), logistics services, and distributions in or from a designated zone that meet the relevant conditions and any ancillary activities related.

The non-qualifying revenue earned by a free zone entity must not exceed the lower of either 5% of their total revenue or $1.3 million.
To confirm whether their free zone is eligible, businesses can contact their free zone authority.

The UAE’s corporate tax law, which levies a headline 9% rate on income of certain businesses exceeding $102,000, indicates the country’s efforts to pursue non-oil growth, diversify its economy, boost its revenue base and reinvest funds in strategic projects, said Younis Al Khoori, Undersecretary of the Ministry of Finance.

According to the Ministry of Economy, the UAE has around 40 free zones, wherein expats and foreign investors benefit from 100% ownership of companies, attracting entrepreneurs and businesses to the country.