Corporate Tax In The Free Zones - New Guidelines 2024

 Some new guidelines were released in May 2024 regarding corporate tax in Free Zones. Here's a quick rundown:

·       The Federal Tax Authority (FTA) issued a guide on how Corporate Tax applies to businesses operating in Free Zones [UAE corporate tax guide for freezones]. This guide clarifies the process for Qualifying Free Zone Persons (QFZPs) to benefit from the 0% corporate tax rate on their Qualifying Income.

·       The guide also details what constitutes Qualifying Activities, Excluded Activities, and the compliance requirements for QFZPs [UAE corporate tax guide for freezones].

Some important points to remember:

·       The 0% tax rate applies to Qualifying Income earned by QFZPs.

·       Not all Free Zone businesses automatically qualify as QFZPs. There are specific requirements to meet.

·       The guide offers details on what happens if a QFZP operates outside the Free Zone in a Permanent Establishment (PE). In that case, the income from the PE would be taxed at the standard 9% corporate tax rate.

If you're looking for the official guide, you can find it on the UAE government's tax authority website: [UAE corporate tax guide for freezones].

Not all Free Zone businesses automatically qualify as QFZPs.

Here's a breakdown of what a Free Zone business needs to do to qualify as a Qualifying Free Zone Person (QFZP) and enjoy the 0% corporate tax rate on its Qualifying Income:

Maximize Your Tax Benefits with the latest updates on qualifying income and activities for the 0% corporate tax rate in UAE Free Zones.

The Ministry of Finance has released crucial information for companies operating in these zones. Here's a breakdown:

• Qualifying Income:
• Transactions with other Free Zone entities.
• Income derived from conducting approved activities (both domestically and internationally).
• Excluded Activities (No 0% Tax Rate):
• Transactions with individual consumers.
• Banking, insurance, financing, and specific leasing activities.
• Owning/using intellectual property assets or UAE real estate.

Important Note: Generating income from excluded activities or non-qualifying sources can disqualify your company from the 0% tax benefit, with some exceptions based on "de minimis requirements."

Stay Compliant, Stay Competitive:

By understanding these guidelines, you can ensure your Free Zone business continues to enjoy the benefits of the 0% corporate tax rate.

Substance Requirements:

• Adequate economic activity: The company's core income-generating activities must be physically located within the Free Zone. This translates to having an adequate number of qualified employees, appropriate assets, and incurring operational expenditure within the Free Zone, commensurate with the level of its activities. Outsourcing is allowed, but only with proper supervision within the Free Zone.
• Demonstrate economic substance: This means the company should be a genuine business operation and not just a shell company set up to avoid taxes.

Income Requirements:

• Qualifying Income: The company's income must come from activities listed as "Qualifying Activities" by the UAE authorities. These are generally activities that contribute to the development of the UAE economy, such as manufacturing, technology, and logistics. Excluded Activities, like banking and insurance, typically don't qualify for the 0% tax rate.

Compliance Requirements:

• Maintain proper records: The company must maintain detailed records of its income, expenses, employees, and assets to demonstrate compliance with QFZP criteria.
• Transfer Pricing: Companies with related party transactions (e.g., with subsidiaries or parent companies) need to comply with transfer pricing rules to ensure arm's length pricing is followed.
• Tax filings: Even with a 0% tax rate, QFZPs are still required to file tax returns with the FTA.

Additional factors to consider:

• New businesses: A new company in its setup phase may still need to generate income, but as long as it meets the other requirements and intends to conduct Qualifying Activities within the Free Zone, it can still qualify as a QFZP.
• Operating outside the Free Zone: If a QFZP establishes a Permanent Establishment (PE) outside the Free Zone, the income generated through that PE will be subject to the standard 9% corporate tax rate.

By meeting these requirements, a Free Zone business can leverage the benefits of being a QFZP, including the significant advantage of a 0% corporate tax rate on its Qualifying Income. It's important to consult with a tax advisor to ensure your specific business activities and structure align with the QFZP criteria. 

How to pledge real estate assets for the short term in Saudi Arabia: The procedures

 Pledging real estate in Saudi Arabia for short-term financing involves following specific procedures outlined in the Commercial Pledge Law (CPL). Here's a general overview:

1. Understand the CPL:

The CPL governs the creation and enforcement of pledges over various assets, including real estate. Familiarize yourself with the law's key provisions, particularly those related to real estate pledges.

2. Secure Legal Counsel:

Navigating the CPL and ensuring a secure pledge requires legal expertise. Consult a lawyer specializing in Saudi Arabian commercial law. They can guide you through the process, draft the pledge agreement, and address any legal concerns.

3. The Pledge Agreement:

The pledge agreement is a crucial document outlining the terms of the pledge. Your lawyer will ensure it includes essential details like:

• Description of the pledged property: A clear description of the real estate asset, including its location, size, and any unique identifiers.
• Secured Debt: Specify the amount of the loan or debt being secured by the pledge.
• Duration: Clearly state the pledge term, ensuring it doesn't exceed six months in your case.
• Default Provisions: Outline the consequences if you fail to repay the debt within the agreed timeframe.
• Valuation: The agreement may require a professional valuation of the property to determine its worth.

4. Registration:

For the pledge to be enforceable against third parties, it must be registered with the relevant real estate registry office. Your lawyer will handle this process.

5. Short-Term Considerations:

While the CPL allows pledges for various durations, some lenders might hesitate for short-term (6-month) real estate pledges due to the registration process involved. Discuss this aspect with your lawyer and potential lenders.

Additional Tips:

• Maintain Open Communication: Ensure clear communication with the lender regarding the loan terms, repayment schedule, and potential early settlement options.
• Consider Alternatives: Depending on your situation, exploring alternative short-term financing options like invoice financing or lines of credit might be faster and less complex.

Remember, this is a general overview, and the specific process might vary depending on your circumstances 

5 Important Common Questions the U.A.E Resident Needs to Know the Answers

 1)Question: I have a residency visa in the UAE, but I am still waiting for my Emirates ID card. I would like to know if I can travel out of the country without an identity card.

U.A.E Residents

Answer: You can travel out of the UAE without the Emirates ID card as long as your residency visa has been issued. UAE immigration will be able to see your visa status electronically.

It is advisable to bring a copy of your Emirates ID card application form with you in case immigration asks for proof that you have applied for the ID. You can also show them the online application status if available.

2)Paternity leave in U.AE is it possible to add this leave to my annual leave?

Answer: Yes, you may be able to add your paternity leave to your annual leave in the UAE. Cabinet Decision No. 1/2022 allows combining parental leave with annual leave

Paternity leave in the UAE is for 5 working days for both private and public sectors. This leave applies to fathers employed by both private and public sectors and can be taken any time within the first 6 months of the child's birth.

Here are some things to keep in mind:

• Approval needed: While regulations allow it, you will still need to get approval from your employer to combine your paternity leave with your annual leave.
• Notice period: Make sure to notify your employer well in advance about your intention to use both your paternity leave and annual leave together.
• Documentation: You will need to provide proof of your child's birth to avail of paternity leave.

3) I have an offshore bank account – will I have to close this account when I move to the U.A.E

Answer? No, you generally do not have to close your offshore bank account when moving to the UAE. The UAE does not restrict residents from having offshore bank accounts.

However, it's important to be aware of UAE regulations regarding reporting foreign income. You may be required to disclose your offshore accounts and any income earned on them to the UAE authorities.

4) Is it possible to sponsor my mother-in-law and father in law in U.A.E?

5) Is it possible to take a Resident visa from GCC countries for a U.A.E  resident without canceling a U.A.E visa?

Yes, it is possible to sponsor your mother-in-law and father-in-law for residency in the UAE, under the Parent Residence Visa program. There have been some recent changes to the eligibility criteria, so here's what you need to know:

• Minimum Salary: You will need to meet a minimum monthly salary threshold to be eligible. This amount is higher than what's required for sponsoring a spouse or child.
• Financial Support: You no longer need to be the sole financial support for your parents-in-law, as was previously required. However, you will still need to demonstrate sufficient income to cover their living expenses.
• Sponsored Together: You cannot sponsor just one parent-in-law. The application needs to be for both of them.

 No, it is generally not possible to hold a resident visa from another GCC country while being a resident of the UAE. UAE residency visas are typically tied to employment or sponsorship within the UAE.

If you are considering working in another GCC country, you would likely need to apply for a work visa in that country. This would likely cancel your UAE residency visa.

Here's why:

·       Tied to Sponsorship: UAE residency visas are linked to your employer or sponsor in the UAE. Having a residency visa in another GCC country would indicate sponsorship or employment outside the UAE, which would conflict with your UAE visa.

·       Specific Country Requirements: Each GCC country has its own immigration regulations. To obtain residency in another GCC country, you would need to meet their specific requirements, which would likely involve canceling your UAE visa.

The U.A.E has introduced a new 10-year "Blue Residency Visa."

 This visa is specifically for individuals who have made exceptional contributions and efforts in the field of protecting the environment.

The United Arab Emirates (UAE) has unveiled
d a new long-term residency program, the ‘Blue Residency’, aimed at environmental advocates. This 10-year visa is designed for those who have made significant strides in environmental protection.

The areas of focus for this visa include enhancing air quality and advancing green technology. Sheikh Mohammed bin Rashid, the Vice-President and Prime Minister of the UAE, stated during a Cabinet meeting on Wednesday that the sustainability of their economy is now intertwined with environmental sustainability.

The introduction of the Blue Residency is one of several initiatives launched by the country in recognition of 2024 as the year of sustainability. This sustainability drive was extended into 2024 following a year dominated by green themes, during which the country encouraged residents to participate in sustainable practices.

Traditionally, the UAE issues residency visas with a two-year validity. However, in 2019, they introduced the 10-year ‘Golden Visas’ for investors, entrepreneurs, scientists, exceptional students and graduates, and humanitarian pioneers, among others. Following this, a five-year ‘Green Visa’ was announced for skilled professionals, freelancers, investors, and entrepreneurs.

Investor Visa vs. Golden Visa in Dubai: Understanding the Key Differences

 I am holding an investor visa in a mainland Dubai-based company and plan to buy a new house to make me eligible for the Golden Visa. What happens to my investor visa if I decide to get the Golden Visa?

 As an individual holding an investor visa in a mainland Dubai-based company, the prospect of obtaining a Golden Visa is undoubtedly enticing. The Golden Visa offers a pathway to long-term residency in the UAE, providing a host of benefits and privileges to its holders. However, the decision to pursue a Golden Visa raises questions about the status of one's existing investor visa and the implications of transitioning between the two.

 In the context of transitioning from an investor visa to a Golden Visa, it is important to note that the Golden Visa is typically granted based on specific criteria, such as property ownership. Therefore, if you decide to purchase a new house in Dubai to meet the eligibility requirements for the Golden Visa, it is likely that your investor visa will be affected.

 In most cases, obtaining a Golden Visa would supersede your existing investor visa, as the Golden Visa represents a higher level of residency status in the UAE. This transition may involve the cancellation or modification of your investor visa, as you would no longer be solely reliant on it for your residency rights in the country.

 Once you acquire your Golden Visa, you are granted a 6-month visa to enter the country before getting residency2. When you acquire your residence visa, you don’t need to stay in the country for long to maintain your status.

 Please note that this information is based on the rules as of early 2024 and may have changed. For the most accurate and up-to-date information, please contact the Federal Authority for Identity, Citizenship, Customs and Port Security (ICP) or the UAE’s embassies and consulates. For Dubai visas, contact the General Directorate of Residency and Foreigners Affairs - Dubai (GDRFAD).

This service allows the real estate investor owning a property the purchase value of which is equal to or more than 2 million AED at the time of purchase, to apply for a 10-years renewable residence permit. The husband or wife, children, and parents can be sponsored. In the event that a mortgaged property, a bank letter indicating 2 million AED paid amount as proof to be provided.

 How can I apply for a Golden Visa in Dubai?

Documents Required to Land department.

1- A passport

2- Availability of an e-Certificate of Title / Title deed

3- A personal photo

4- UAE ID (if any)

5- A copy of the current residence permit (if any).

 Charges for 10 years residency permit

1- AED 700 fee for medical examination

2- AED 1,153 fee for UAE ID (10 years)

3- AED 2,656.75 fee for confirmation of residency permit (10 years)

4- AED 4,020 fee for the Land Department

5- AED 1,155 administrative fee

The total is AED 9,684.75

 Family residence permit for 10 years

AED 5,668.50 fees

AED 318.75 fee for opening a family sponsorship file

A residence permit for the parents for 10 years

AED 5,668.50 fee for 10 years

Service Procedures:

Step I: A customer will move to a service center

Step II: A customer will submit the service requirements and pay the fees

Step III: A customer will perform a medical examination at the center

Step IV: Sending the residence permit of the applicant via e-mail

 However, it's important to consult with an immigration professional for specific advice on your situation. They can advise on any potential conflicts between your current visa and the Golden Visa based on your company's specific investor visa program.