Trading, import & export
Is my free-zone trading company at 0% Corporate Tax?
Being in a free zone is a starting point, not the answer.
The conditions
- Adequate substance in the free zone: people, premises and activity
- Qualifying income from qualifying activities or transactions
- Audited financial statements
- Compliance with transfer pricing rules
- Non-qualifying revenue below the de minimis limit: 5% of total revenue or AED 5 million, whichever is lower
- No election to be taxed at the standard rates
Trading activities
Trading in qualifying commodities and certain distribution of goods in or from a designated zone can be qualifying activities. General trading with mainland customers is often non-qualifying income. Each revenue stream has to be classified, every year.
Why the de minimis test matters
If non-qualifying revenue exceeds the de minimis limit, the company stops being a Qualifying Free Zone Person, and the consequence is not limited to that year. A single large mainland contract can be enough. Monitor the ratio during the year, not only at year end.
What to do now
- List every revenue stream and classify it
- Check where your customers and goods are located
- Arrange the audit early
- Document related-party transactions at arm's length
Recent result
AED 36,000
of AED 40,000 in penalties waived for an IFZA free-zone company. We prepared the waiver request; the investor paid AED 4,000.
Not sure where you stand?
Send us your last VAT return or your trade licence. A chartered accountant will tell you what is in order and what needs attention. No obligation.