UAE FEDERAL TAX AUTORITY (FTA) HAS BEGUN AUDITING COMPLIANCE WITH THE CRITERIA FOR APPLYING THE 0% TAX RATE: WHAT YOU NEED TO KNOW AND HOW TO PREPARE

The first filing cycle for corporate tax returns in the UAE has concluded. The submitted returns have been audited by the Federal Tax Authority (“FTA”).

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An inevitable consequence of the audit of the first corporate tax returns has been a wave of inquiries from the FTA to taxpayers. The FTA’s inquiries have focused primarily on companies incorporated in free zones that claimed the preferential 0% tax rate on their returns.

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It should be noted that the 0% tax rate is not available to all companies established in free zones, but only to those that meet the requirements for obtaining Qualifying Free Zone Person (“QFZP”) status.

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As a general rule, QFZP status is presumed for companies in free zones; however, they may lose their right to apply the 0% tax rate if the FTA identifies non-compliance with at least one of the requirements for QFZP status.

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The current wave of inquiries is specifically aimed at verifying taxpayers’ compliance with the conditions for obtaining QFZP status.

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