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The UAE introduced its first tax-free zone in 1985 with the establishment of the Jebel Ali Free Zone (JAFZA) in Dubai.
The UAE has always been synonymous with innovation, progress, and a strategic approach to economic development. One such innovative milestone was the introduction of Tax-Free Zones.
By 2000, tax-free zones had become a cornerstone of the UAE's economic strategy, fostering foreign investments, generating employment, and diversifying the economy beyond oil dependence.
Transition to VAT Era and Classification of Free Zones
The introduction of Value Added Tax (VAT) in the UAE in 2018 was a major economic reform. To align with VAT regulations and maintain the benefits of free zones, the UAE Federal Tax Authority (FTA) introduced the concept of Designated Free Zones
Designated Free Zones and Their Characteristics
Designated Free Zones are specific VAT-exempt zones recognized by the FTA for their strategic importance and operational characteristics. These zones meet stringent criteria, including:
- Fenced geographical boundaries.
- Strict customs control.
- Special VAT treatment for the movement of goods within and between these zones
Designated Free Zone and UAE Corporate Tax – Current Relevance
A Qualifying Free Zone Person can benefit from the 0% Corporate Tax rate if it derives Qualifying Income from transactions in respect of the following Qualifying Activities.
Qualifying Activities
- Manufacturing of goods or materials.
- Processing of goods or materials.
- Trading of Qualifying Commodities.
- Holding of shares and other securities for investment purposes.
- Ownership, management, and operation of ships.
- Reinsurance services.
- Fund management services.
- Wealth and investment management services.
- Headquarter services to Related Parties.
- Treasury and financing services to Related Parties.
- Financing and leasing of aircraft.
- Distribution of goods or materials in or from a Designated Zone.
- Logistics services.
Example:-
Note: The Distribution of goods or materials within or from a Designated Free Zone will be considered a Qualifying Activity under the UAE Corporate Tax Law. However, other Free Zones will be treated as Mainland for UAE Corporate Tax purposes.
The evolution of tax-free zones in the UAE underscores the nation’s unwavering commitment to innovation and economic adaptability. From the introduction of JAFZA to the strategic designation of free zones under VAT and corporate tax laws, these zones have played a pivotal role in shaping the UAE’s modern economy. As the country continues to refine its policies, the integration of free zones into its broader tax framework ensures that the UAE remains a competitive and attractive destination for global investors and businesses.
ACCESS LIST OF FREE ZONES IN GCC HERE
Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice
Contributor
Ahammed Niyaz a Finance Professional and UAE Corporate Tax Consultant with over five years of experience in Accounting, Auditing, and Taxation. A CA Inter Qualified professional, I transitioned to freelancing in Dubai to help businesses navigate the complexities of UAE Corporate Tax through compliance and strategic tax planning. Partnering with GCC International Services Company FZC LLC, I deliver comprehensive solutions, combining tax expertise with administrative support for free zone companies.
