UAE free-zone status removes the rate, not the filing obligation
A free-zone company still registers for UAE corporate tax and still files a return; what free-zone status can remove is the rate on qualifying income, and only for a company that meets the qualifying conditions and can evidence the split. This is an illustrative example of how Salt approaches UAE corporate tax readiness, using a Dubai free-zone trading company as the profile.
Scenario — an illustrative example of how Salt approaches this problem. Not a description of a specific client engagement.
The business shape it describes: Dubai free-zone trading company, around 2,400 transactions a month.
- Scenario covers
- Bookkeeping rebuilt to corporate tax filing standard, with qualifying income separated and the corporate tax return prepared
- Jurisdiction
- United Arab Emirates
- Sector
- E-commerce
- Take a Dubai free-zone trading company processing around 2,400 transactions a month, which has treated corporate tax as something that does not apply to free-zone entities.
- Bookkeeping is maintained to a standard that has been adequate for VAT returns and has never been tested against a corporate tax return.
- Records not maintained to the standard a corporate tax filing requires, nor organised for the retention period the law expects, which is longer than most operational filing habits assume.
- Qualifying and non-qualifying income not separated, which is the exact distinction the free-zone rate depends on and the one that cannot be reconstructed reliably after the year has closed.
- Related-party transactions with the parent undocumented, with no contemporaneous basis for the pricing applied.
- VAT and management accounts maintained on different bases, so the corporate tax return would start from figures that do not tie to the VAT filings.
- Separate qualifying from non-qualifying income in the chart of accounts, so the split is captured as transactions occur rather than estimated at year end.
- Rebuild record-keeping to the standard a corporate tax return requires, organised so records can be produced for the full retention period.
- Document related-party transactions and the basis for their pricing, contemporaneously from that point forward.
- Reconcile VAT filings to the same ledger the corporate tax return will be prepared from, so the two are consistent before anyone asks.
- Prepare the corporate tax return and its supporting analysis. Where representation before the Federal Tax Authority is required, that stays with an FTA-registered tax agent.
- The free-zone rate turns on the split between qualifying and non-qualifying income, which is a chart-of-accounts decision made long before the return exists.
- Books kept to a standard adequate for VAT are not books that can support a corporate tax filing and a multi-year retention requirement. Knowing where that gap sits is the whole of the preparation.
- The company would be able to file within the deadline from records built for the purpose, rather than reconstructing a position under time pressure.
- The qualifying income position would be documented and evidenced rather than asserted, which is the difference between a claim that holds and one that does not.
- VAT and corporate tax would be produced from the same reconciled ledger, so the two filings agree.
What we'd flag
Reconstructing the basis for related-party pricing after the fact is the slowest part of this work and the least satisfying. Free-zone status has to be substantiated with records, and records that were never kept have to be rebuilt from whatever evidence survives, which is not always enough.
UAE free-zone status removes the rate, not the filing obligation
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