In Episode 4 of the Rethink Corporate Tax podcast series, Neil Guthrie (Head of Finance & Tax at Rethink) and Keerthi Voodimudi (Director of Tax) turn their attention to one of the most strategically important—and currently ambiguous—topics in UAE taxation: Free Zone Entities and their position under the new CT regime.
Despite the common belief that Free Zone businesses are exempt from corporate tax, the episode clarifies that:
- Free Zone entities are within the scope of UAE corporate tax.
- Businesses must meet specific qualifying criteria to benefit from the 0% rate, including maintaining substance, adhering to transfer pricing, and generating qualifying income.
- The definition of “qualifying income” remains uncertain and may be clarified only through a future cabinet decision.
- Documentation, accounting practices (under IFRS), and regulatory compliance are required regardless of whether a business is taxed at 0% or 9%.
- Electing to pay tax at 9% may benefit some Free Zone entities under group structuring or Pillar Two considerations.
The episode also addresses:
- The treatment of mainland branches of Free Zone entities
- The difference (or lack thereof) between offshore and mainland Free Zones
- Practical steps businesses should be taking now to model different scenarios and prepare for full compliance
While key questions remain, the time to prepare is now. Scenario planning and solid record-keeping will position Free Zone entities to make informed decisions once full guidance is issued.
Listen to Episode 4 to understand the strategic implications of the Free Zone tax rules and how best to future-proof your structure.
