Are Qualifying Free Zone Persons Required to Maintain Audited Financial Statements?
Are Qualifying Free Zone Persons required to maintain audited financial statements in UAE

Are Qualifying Free Zone Persons Required to Maintain Audited Financial Statements in UAE?

The introduction of corporate tax has been a strategic imperative in the economic history of UAE. Although, the free zone persons have the advantage of paying zero percent corporate tax on the income incurred from qualifying activities. It is nevertheless mandatory for them to meet all the conditions to benefit from it and filing their corporate tax returns on the same basis. 

 

As part of the compliance measures to avail zero percent benefit, all qualifying free zone persons are required to have their financial statements audited by a licensed auditor from the top auditing firm in Dubai. While the audit requirement for books of account under the UAE’s corporate tax regime may not be mandatory for other businesses, it is certainly paramount for all qualifying free zone persons, and to ensure compliance don’t fret about engaging auditing services in Dubai. 

 

However, before we delve deeper into this matter, it is important to understand the intricacies of Qualifying Free Zone Persons and their relationship with Corporate Tax. 

Understanding Qualifying Free Zone Persons

A qualifying free zone person refers to a free zone person, compliant with all the conditions of the free zone corporate tax framework and subsequently benefits from the same. As per these conditions, a qualifying free zone person needs to: 

 

  • Keep an adequate substance in a Free Zone
  • Have income from Qualifying activities 
  • Refrain from electing the regular UAE Corporate Tax regime
  • Comply with arm’s length principle, transfer pricing rules and documentation requirements
  • Prepare and maintain audited financial statements

 

In case of failure to comply with any of these conditions, a qualifying free zone person could lose the qualifying status and will be ineligible for the same benefit for at least five tax periods. 

Interconnection between Qualifying Free Zone Persons and Corporate Tax

A qualifying free zone person is subject to a zero percent corporate tax only if the taxable income is derived from qualifying activities and transactions with other free zone persons. It is important to note that when a qualifying free zone person operates outside the free zone via permanent establishment in mainland UAE or in a foreign country, then the profits applicable to such permanent establishment are subject to a 9% CT. The same percentage is also applicable to the income earned from immovable property in the UAE. 

 

 

Note: The administration and enforcement of the UAE corporate tax are handled by the Federal Tax Authority. The FTA is tasked with the responsibility to verify and make the final decision regarding a qualifying free zone person’s compliance with all the conditions of the free zone corporate tax regime.  

Comprehending Adequate Substance

It is mandatory for a qualifying free zone person to have and demonstrate adequate substance in a free zone, which should be relevant to nature, level of activities and the qualifying income it earns. This essentially means that the qualifying free zone person should have adequate staff and assets and incur requisite operating expenditure in the relevant free zone or any other free zone for the purpose of undertaking income-producing activities. Also, a qualifying free zone person can only outsource their activities to a person in the free zone if it exercises control and supervision over the outsourced activity. 

 

When calculating the substance of a qualifying free zone, it is important to include the activity performed by either a related or unrelated party in the same or another free zone on behalf of that qualifying free zone person. In addition, a qualifying free zone can maintain its economic and operational substance both in the registered or established free zone.  



Maintenance of Audited Financial Statements

While qualifying free zone persons certainly do enjoy zero corporate tax, they must outsource accounting services in Dubai to prepare and maintain their audited financial statement for the purpose of null corporate tax. Although it may not be mandatory for all entities, maintaining audited financial statements can increase transparency, improve financial control and enhance credibility with stakeholders.  

 

It is quite evident that maintaining audited financial statements is imperative for qualifying free zone persons. Apart from this, they are also required to maintain all relevant documents and records to underlinye their compliance with all the conditions outlined under the free zone corporate tax regime. 

 

If you’re a qualifying free zone person and looking for the maintenance of audited financial statements, we at A&A Associate, the leading auditing firm in Dubai can assist you with expert advice. We are trusted partners, offering reliable and secure accounting service in Dubai to streamline your business and operational growth.      



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