UAE Corporate Tax Compliance in the DMCC Free Zone

UAE Corporate Tax Compliance in the DMCC Free Zone

Corporate Tax Is Now Applicable in the UAE — Including DMCC

The UAE’s corporate tax regime, introduced under Federal Decree-Law No. 47 of 2022, applies to financial years starting on or after 1 June 2023. All businesses — including those in Free Zones — must register for corporate tax with the Federal Tax Authority (FTA) and fulfil their statutory obligations.

Who Must Register?

Every legal entity registered or incorporated in the UAE — including DMCC Free Zone companies — is required to register for UAE corporate tax. This applies regardless of whether your company earns taxable income, qualifies for 0% tax, or has no commercial activity.

Important: Registration itself is mandatory even if the company expects to benefit from 0% tax or reports nil income. Failure to register in time can lead to administrative penalties or compliance issues.

Understanding Tax Rates for DMCC Companies

DMCC entities are treated as Taxable Persons under the UAE Corporate Tax Law. This means:

9% tax applies on taxable income exceeding the threshold, typically AED 375,000, unless exempted or qualifying for relief (standard regime).

Companies that satisfy specific criteria may qualify as a Qualifying Free Zone Person (QFZP) and enjoy 0% corporate tax on Qualifying Income.

What Makes a Qualifying Free Zone Person (QFZP)?

To benefit from the 0% tax rate on qualifying income, a DMCC company must:

• Be registered and licensed in a Free Zone (like DMCC).

• Maintain adequate substance in the UAE — meaning active operations, office space, employees, and management.

• Generate Qualifying Income from permitted activities (e.g., trading, manufacturing, IP, investment holding).

• Comply with transfer pricing rules and documentation.

• Keep audited financial statements in accordance with International Financial Reporting Standards (IFRS).

• Non-qualifying income — especially transactions with mainland UAE entities — may still be subject to 9% tax.

Core Compliance Requirements for DMCC Companies

Even if your DMCC company qualifies for 0% tax on qualifying income, you must still comply with the following:

Tax Registration

Register with the FTA within the prescribed timelines. Late registrations can attract penalties.

Annual Corporate Tax Returns

Submit accurate corporate tax returns annually — even if taxable income is zero. Returns must be filed within the deadlines set by the FTA.

Record Keeping

Maintain financial records, invoices, contracts, and other supporting documentation for at least 7 years. These records must be available for inspection if requested by the FTA.

Transfer Pricing Documentation

If your business deals with related parties, prepare transfer pricing documentation to demonstrate that transactions are conducted at arm’s length.

Annual Audit

DMCC mandates audited financial statements for all companies. Audits are essential for compliance, corporate tax returns, and license renewals.

Penalties for Non-Compliance

DMCC companies must be vigilant about compliance deadlines. Missing filings, failing audits, incomplete records, or delayed registrations can result in fines, delayed license renewals, or reputational risks.

Practical Tips for Compliance Success

• To ensure seamless corporate tax compliance and avoid penalties:

• Start early with your FTA registration.

• Maintain proper bookkeeping and accounting records (IFRS compliant).

• Plan and prepare for your annual audit and timely submission of audited accounts.

• Document economic substance and related party transactions.

• Seek expert support for tax return preparation and filings.