In the latest initiative, ICAEW held a session with companies to explain how the new tax rules impact UAE businesses, especially those operating in free zones.
The session was meant to highlight how the new corporate tax policies will differ for companies operating in free zones from mainland onshore companies.
The new corporate tax rate of 9 percent, effective either in June or January 2024 depending on the financial year, aligns with the broader OECD Pillar Two framework, which includes a global minimum corporate tax requirement of 15 percent for large multinationals.
Free zone companies, which enjoy unique tax policies and various appealing advantages, are being encouraged to take note of the changes.
Tax holidays for qualifying free zones
While the UAE has decided to honour the tax holidays for free zone companies, not all the over 40 free zones in the UAE qualify for this exemption.
Certain activities, like manufacturing of goods and services, processing of materials, and ownership and management of operations and shipping, fall within the tax holiday category. However, activities like banking, insurance, finance and leasing, ownership and exploitation of oil rights, will still be taxed at 9 percent.
The discussions at the session also clarified that the tax holiday does not imply zero tax, rather a corporate tax rate set to 0 percent, with the possibility of future incremental adjustments.
“Despite the 0 percent corporate tax rate, free zone companies are still required to maintain adequate bookkeeping to ensure compliance with transfer pricing regulations, ICAEW said.
Hanadi Khalife, Head of Middle East, ICAEW, said while the levy on corporations is reshaping business operations from a legal and accounting standpoint, the measured introduction of the policy suggests those leading its implementation are committed to creating a mutually beneficial business landscape.
“Companies have the option to create tax groups, treating subsidiary businesses as one taxable entity. However, the UAE government emphasises the need for regional businesses with limited experience in corporate tax regimes to maintain standard accounting practices to ensure compliance,” he said.
The UAE government has unveiled early this year a comprehensive corporate tax policy, encompassing both mainland and free zone regulations, to foster a fair and transparent business environment.
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