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Corporate tax registration is mandatory for free zone companies

There is no concept of a 'free zone' for VAT purposes, says Markus Susilo, partner at Crowe UAE

Khaleej Times' has launched a new initiative to offer readers expert insights about the impact of VAT and Corporate Tax on UAE’s business environment. Here is another expert view:

If my company is located in a UAE freezone, do I need to register for taxation in the UAE?

There is no concept of a "free zone" for VAT purposes; instead, the UAE recognises Designated Zones for VAT. Companies in these Designated Zones are treated like any other company and must register for VAT when certain conditions are met. Corporate tax registration is mandatory for free zone companies even if the company qualifies for the zero per cent corporate tax rate on certain type of income. A branch of a foreign company in a free zone engaged in specific business activities may be exempt from corporate tax if certain conditions under the UAE Corporate Tax Law are met.

What are some of the main changes in the latest UAE VAT Executive Regulations (ER) which benefit businesses in the UAE?

Amendments to the UAE VAT ER introduce several changes that can significantly benefit businesses. These include, but not limited to:

> Clarity of certain existing provisions

> Expansion of the recoverability of input VAT on health insurance premium

> Additional VAT exemption on investment fund management services and virtual assets

If I have holding companies outside the UAE but the directors are sitting in the UAE, will there be any UAE tax risks?

A holding company is a business entity that exists primarily to manage and control other companies, often by owning majority shares. We have seen in few cases that the directors of a foreign holding company are sitting in the UAE. When these directors are involved in managing operations or conducting business activities within the UAE, the holding company may be classified as having a fixed establishment and permanent establishment in the UAE. This would necessitate tax registration and compliance to all tax obligations such as filing returns, paying taxes, issuing compliant tax invoices, and record-keeping. Additionally, if the place of effective management (POEM) is in the UAE, the company will be treated as a resident for corporate tax purposes and could be subject to UAE corporate tax on worldwide income.

About the expert

Markus Susilo is a partner at Crowe UAE and a trusted business and tax advisor to the Austrian Commercial Section of the Austrian Embassy in the UAE. He supports MNCs, HNWIs, and large UAE corporates in navigating UAE and other global statutory compliance requirements, including tax, accounting, corporate, and HR-related regulations.

Contact Us

For those with tax-related queries or who simply wish to stay informed on how the new laws and changes might impact them, Khaleej Times is here to help. Questions can be sent to taxquery@khaleejtimes.com or inquiries can be made by calling +971-4-3384545.