The UAE Ministry of Finance will issue new guidance for free zone businesses carrying on distribution activities, detailing their corporate tax position under the 0% tax regime. The ministry will also make announcements regarding tax groups’ financial statement requirements, providing greater clarity for entities doing business under the UAE’s Corporate Tax Law (Federal Decree-Law No. 47 of 2022).
Key Updates & What to Expect:
1. Free Zone Enterprises in Distribution
Explanation of 0% Tax Eligibility: The new rules will specify whether distribution operations are eligible for the 0% rate of corporate tax (offered to Qualifying Free Zone Persons).
Substance & Compliance: Free zone companies need to satisfy economic substance tests and not earn income from mainland UAE activities to qualify for tax relief.
Potential Impact: Certain distributors would have to redraw plans if their operations are not eligible for the 0% rate.
2. Tax Groups & Financial Statements
Consolidation Rules: Changes could make it clear how tax groups need to compile consolidated financial statements for tax purposes.
Eligibility Criteria: Clarification on whether the subsidiaries should adopt the same financial year and accounting standards in order to constitute a tax group.
Loss Utilization: Clarification on the utilization of losses within tax groups.
3. Timeline & Next Steps
The Ministry of Finance will come out with detailed circulars shortly.
Companies must examine their setups and plan for possible compliance changes.
Why This Matters
Free Zone Clarity: Free zone distributors (such as JAFZA or DMCC) must clarify whether they can continue to enjoy tax exemptions.
Tax Group Efficiency: Multiple entity companies can streamline filings if grouping rules are simplified.
