UAE Publishes Updated Guidance on Free Zones and Designated Zones for Tax Purposes

The UAE Federal Tax Authority published Tax Public Clarification TAXP010 “Free Zones and Designated Zones for Tax Purposes” to provide clarifications on what constitutes a Free Zone or a Designated Zone for each Tax Law (Corporate Tax, Excise Tax, and Value Added Tax), and key differences in the definitions between these Laws.

A Corporate Tax Free Zone is a designated and defined geographic area within the UAE that is specified in a decision issued by the Cabinet at the suggestion of the Minister.

A Corporate Tax Designated Zone is a designated zone according to what is stated in the VAT Law (i.e. the “List of Designated Zones”), and which has been included as a Free Zone in accordance with the Corporate Tax Law.

An Excise Tax Designated Zone is a specific free zone or geographic areas that meets the conditions set out under the Excise Tax Law and Excise Tax Executive Regulation.

A VAT Designated Zone is a Free Zone that is listed in Cabinet Decision No. 59 of 2017 and its amendments that meets the conditions specified in Article 51(1) of the VAT Executive Regulation.

The Corporate Tax rules for Qualifying Free Zone Persons allows juridical persons that are incorporated, established or otherwise registered in a Corporate Tax Free Zone to benefit from a 0% Corporate Tax rate on their Qualifying Income.

A Qualifying Free Zone Person engaged in distribution activity may benefit from the 0% Corporate Tax rate on its Qualifying Income only where such distribution activities are carried out in or from a Corporate Tax Designated Zone.

In order to determine if a Business operates in a Free Zone or a Designated Zone for Corporate Tax purposes, taxpayers should check with their respective Free Zone authority to confirm if they operate in a Free Zone or a Designated Zone for Corporate Tax purposes.

In order for a Free zone to qualify as an Excise Tax Designated Zone, the Free zone must:

• Have security measures in place to restrict entry and exit of individuals and movement of Excise Goods to and from the fenced Free Zone according to the controls specified by the FTA.

• Be controlled and supervised by a customs department.

• Have a Warehouse Keeper appointed for the fenced Free Zone.

In order for a VAT Designated Zone to be considered as outside the UAE, the following conditions must be met:

• The area is located in a specific fenced geographic area and must have security measures and customs controls in place to monitor entry and exit of individuals and movement of Goods to and from the area.

• The zone shall have internal procedures regarding the method of keeping, storing and processing of Goods therein.

• The operator of the zone complies with the procedures set by the FTA.

TAXP010 “Free Zones and Designated Zones for Tax Purposes”