Free Zone Benefits for Start-Up Companies

Federal Tax Authority (FTA) has issued a Guide dated 20 May 2024 which clarifies that a Free Zone Person (FZP) with no Revenue in the start-up phase?will not be automatically disqualified from being a Qualifying Free Zone Person (QFZP), provided that it does not derive any non-qualifying Revenue and complies with all other requirements/ conditions prescribed by the UAE Corporate Tax Law.

Example:

Company F (a QFZP) is incorporated on 1 January 2024 in a Free Zone to manufacture environmentally friendly products (a Qualifying Activity). It follows the Gregorian calendar year as its Tax Period.?Throughout the 2024 and 2025 Tax Periods, Company F remains in the preparatory phase, purchasing equipment, hiring staff, and finalizing its product development. The company does not earn any Qualifying Income as its Qualifying Activity of Manufacturing is not yet fully operational.

?No Revenue arises during the 2024 and 2025 Tax Periods, even though the company has incurred expenditures.?In this case, having no Qualifying Income for the 2024 and 2025 Tax Periods will not automatically disqualify Company F from being a QFZP as there is no Revenue and Business operations have not commenced.?Therefore, Company F can retain its QFZP status for the 2024 and 2025 Tax Periods, anticipating its potential to generate Qualifying Income in the successive periods when its Qualifying Activity of manufacturing begins and it generates Revenue. In this case, Company F can file its Tax Returns as a QFZP for the 2024 and 2025 Tax.?