How to File Corporate Tax for UAE Freezone Companies

Introduction

Starting and running a business in the UAE Freezones comes with a unique set of benefits, including tax exemptions and a streamlined registration process. However, as the UAE's tax landscape evolves, it's essential for Freezone companies to stay informed about the corporate tax filing process. In this comprehensive guide, we'll walk you through how to file corporate tax for a Freezone company in the UAE, ensuring you stay compliant and avoid penalties.

Understanding the UAE Freezone Tax System

Before diving into the filing steps, it's important to understand the basics of the UAE Freezone tax system.

Historically, Freezone companies were granted various tax exemptions, such as zero corporate tax for up to 50 years in some zones. However, with the introduction of the UAE Corporate Tax Law in 2023, the government aimed to align with global tax standards. The UAE Federal Corporate Tax introduced a standard 9% tax rate on business profits exceeding AED 375,000, while smaller businesses with taxable income below this threshold benefit from a 0% rate.

Despite these changes, Freezone companies in the UAE still enjoy considerable tax advantages. Many Freezone entities can qualify for a 0% corporate tax rate on "qualifying income" through available tax incentives, though this doesn't automatically exempt all Freezone businesses from corporate tax obligations.

Find out more about the latest corporate tax updates in the UAE

Step-by-Step Guide on How to File Corporate Tax for Freezone Companies in the UAE

Filing corporate tax in the UAE may seem daunting, but breaking it down into manageable steps makes it easier to navigate. Here's a comprehensive guide for filing corporate tax in UAE Freezones:

Step 1: Understand Your Taxable Income and Tax Status

First, determine your taxable income and whether your Freezone company qualifies for tax incentives. Freezone companies typically need to assess which portions of their income qualify for the 0% tax incentive.

Qualifying Income Generally Includes:

• Income derived from transactions with other Freezone businesses
• Income from foreign entities (outside the UAE)

Non-Qualifying Income (Subject to 9% Tax):

• Income derived from mainland UAE businesses and abroad
• Income from certain specified activities, even within Freezones

To make this process smoother, ensure your financial records are accurate, up-to-date, and clearly distinguish between qualifying and non-qualifying income sources.

Step 2: Register with the Federal Tax Authority (FTA)

All businesses operating in the UAE, including Freezone companies, must register for corporate tax with the Federal Tax Authority (FTA), which is responsible for tax enforcement in the UAE.

Registration Process:

• Create an account on the FTA portal
• Submit required documentation, including trade license and incorporation documents
• Receive your Tax Registration Number (TRN)

FTA registration portal

Timeline:Registration deadlines vary based on financial year-end dates. Ensure you register at least 3 months before your tax return filing deadline.

Step 3: Prepare Your Financial Statements and Documentation

Once you've determined your taxable income and registered with the FTA, prepare your financial statements and necessary documentation:

• Income statement
• Balance sheet
• Cash flow statement
• Notes to the financial statements
• Supporting documentation for claimed exemptions

Preparing Financial Statements for UAE Freezone Tax Filing

Step 4: Understand Economic Substance Requirements

The Economic Substance Regulations (ESR) play a crucial role in qualifying for Freezone tax incentives. Your company must demonstrate:

• Physical presence in the UAE
• Qualified employees
• Adequate operating expenditure
• Core income-generating activities performed in the UAE

Failure to meet ESR requirements may disqualify your Freezone company from tax incentives, regardless of other factors.

Step 5: Prepare Transfer Pricing Documentation (If Applicable)

If your Freezone company engages in transactions with related parties, you must prepare:

• A master file (for groups with consolidated revenue exceeding AED 3.15 billion)
• A local file documenting related-party transactions
• Disclosure forms identifying related parties and transaction values

These documents must demonstrate that transactions occur at "arm's length" pricing, meaning comparable to transactions between unrelated parties.

Step 6: Calculate Your Taxable Income

Your taxable income calculation should:

1. Start with accounting net profit/loss
2. Add back disallowed expenses
3. Deduct exempt income
4. Apply any available tax relief
5. Calculate tax at appropriate rates (0% on qualifying income, 9% on non-qualifying income)