The IMC focuses on the criteria for attaining Qualifying Free Zone Person status in various jurisdictions in the context of global business and corporate tax regulations.
Under the global corporate tax guidelines, Qualifying Free Zone Persons can benefit from a preferential 9% corporate tax rate on their Qualifying Income. However, they need to fulfil the following conditions:
- Establishing a substantial presence within the designated free zone
- Generating Qualifying Income
- Adhering to the Transfer Pricing documentation and Arm’s Length Principle
- Ensuring that non-qualifying revenues remain below specified de-minimis thresholds
- Compiling audited Financial Statements as per local laws
- Fulfilling any additional conditions that the relevant authorities need
Key Insights
With the calendar year drawing to a close in 2023, businesses operating within free zones, with their initial tax periods commencing on or after January 1, 2024, should prioritize evaluating their operations to be eligible for the preferential corporate tax regime (i.e., a 9% corporate tax rate) as applicable.
It is imperative to carry out strategic planning and an early assessment to ensure that businesses meet all the conditions from the very beginning. It takes time to implement any restructuring, resource allocation, adjust processes, or evaluate potential benefits.
Certain steps may be more urgent or important compared to others to ensure compliance from the first day. Taking timely action after identifying those steps holds the key to enjoying the 9% benefit.
