The Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses which is referred to as the Corporate Tax Law was issued by the UAE on 09 December 2022. On the other hand, Free Zones are business jurisdictions in the UAE that are overseen by an explicit regulatory authority. The registration process of both corporate tax and free zone has some explicit differences such as eligibility, obligations, etc.
What is the Difference Between Corporate Tax Registration vs. Free Zone Registration in the UAE?
The prominent differences Between Corporate Tax Registration vs. Free Zone Registration in the UAE are;
1) Tax Liability
Businesses registered under the Corporate Tax regime in the UAE are mandatory to pay corporate tax on their net profits. This explicit corporate tax is calculated by the formula (allowable expenses – gross income). This formula results in a taxable profit. The corporate tax applies to mainland businesses. As a result, companies working under this regime need to be accountable for this ongoing tax liability in their financial planning.
Businesses registered within a Free Zone in the UAE typically get the benefit of full exemption from corporate tax for a definite period. This exemption allows free zone companies to hold a bigger cut of their profits. This tax-free status enhances the competitiveness of companies by dropping operational costs.
2) Ownership and Control
Businesses have to follow all the UAE’s mainland regulations under Corporate Tax Registration. It often includes obligations for local ownership or partnership. Normally, companies on the mainland are mandated to have a local Emirati partner who owns at least 51% of the business.
On the other hand, Free Zone Registration offers 100% foreign ownership deprived of the necessity for a local sponsor or partner. This complete ownership is a noteworthy inducement for global investors who are looking to uphold complete control over their business operations.
3) Compliance and Regulatory Obligations
Corporate tax registration is subject to strict compliance obligations. It generally comprises annual tax filings, audits, and periodic or regular financial reporting. These obligations demand strong accounting systems and the involvement of capable tax specialists to ensure obedience to the UAE’s corporate tax regulations.
Free zone businesses usually experience a light regulatory burden. While businesses must obey the explicit regulations of the free zone authority, these obligations are often less strict than those for mainland companies. For example, many free zones do not necessitate annual audits or wide-ranging financial reporting. This shortened regulatory atmosphere decreases the managerial overhead for businesses which enables them to focus more on their important activities.
4) Charges or Cost
Corporate tax registration needs periodic tax payments. The primary setup cost is comparatively less related to free zones. However, the growing tax liability over time sometimes escalate the overall cost of running a business. These continuing costs must be considered in long-standing financial planning.
Free zone registration needs higher setup cost in the beginning. It generally comprises the fees of licensing and leasing within the free zone. But, if you considering long-standing savings from corporate tax exemptions, they can counterbalance these major beginning expenses. It also makes a cost-effective option for businesses over time.
5) Working Flexibility
Corporate tax-registered businesses work spontaneously in the UAE, as well as the mainland. This open access to the UAE market offers significant working flexibility. It allows companies to be involved directly with clients and customers. Corporate tax registration offers the advantage of direct market engagement for businesses targeting the domestic market without the confines levied on free zone entities.
Free zones registered businesses face limitations when conducting corporate events within the mainland. Free zone entities are usually not allowed to be involved in direct commercial activities on the mainland without a local branch office. This restriction can set limits for market access.
Conclusion
Both Corporate tax registration and free zone registration in the UAE presents variances due to numerous aspects. The choice to selection between registration options depend on the explicit business needs. Businesses must cautiously assess their explicit requirements, market focus, and objectives to determine the most beneficial registration type. It is recommended to get assistance from Corporate Tax UAE Their proficient team can help businesses choose the option as per their needs and requirements.
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