When it comes to corporate tax obligations in the UAE, there’s a common and persistent misconception: All free zone companies must register for corporate tax. This widespread belief is, however, inaccurate. Specifically, free zone companies structured as sole establishments have different requirements that can exempt them from corporate tax registration under certain conditions.
Understanding the Exemption: The Legal Structure Matters
Free zone companies registered as sole establishments are treated as natural persons for tax purposes. This distinction is crucial because the tax regulations that apply to natural persons differ from those that apply to other types of companies. Sole establishments, whether located on the mainland or in free zones, fall under this category.
Revenue Threshold: The AED 1 Million Rule
The Federal Tax Authority (FTA) regulations state:
- Sole establishments are only required to register for corporate tax if their annual revenue exceeds AED 1 million.
- This threshold allows many small and medium-sized businesses operating as sole establishments to bypass corporate tax registration requirements unless their earnings reach this specified amount.
Avoiding Unnecessary Costs: Common Missteps to Watch For
Unfortunately, many businesses have prematurely registered for corporate tax despite falling below the required revenue threshold. This can lead to unnecessary compliance burdens, increased administrative tasks, and added bookkeeping expenses. If your free zone sole establishment has registered and you do not meet the revenue requirement, deregistration may be a viable option to minimize these costs.
Book a Free Consultation Today
Understanding and navigating corporate tax regulations can be challenging. If you’re uncertain about your tax obligations or if you’ve already registered and want to explore deregistration options, book a free consultation with us. We can help you streamline compliance, reduce unnecessary overhead, and focus on what truly matters – growing your business.
