Corporate Tax for Offshore Companies in UAE: What You Need to Know

The introduction of corporate tax in the UAE marks a significant shift for businesses, including offshore companies. Historically, offshore companies in the UAE enjoyed tax advantages, particularly in Free Zones like JAFZA Offshore and RAK ICC. However, with the new corporate tax law (Federal Decree-Law No. 47 of 2022), these businesses are now required to comply with updated regulations. This change aligns the UAE corporate tax law with international corporate tax standards, ensuring that corporate tax purposes are met while maintaining the UAE’s position as a global business hub.

At Young & Right, we specialize in providing corporate tax advisory services for offshore companies in the UAE, helping businesses navigate the complexities of the UAE corporate tax regime. Our expert tax consultants ensure that businesses comply with tax registration requirements, minimize tax liabilities, and maximize tax savings. Whether you're dealing with corporate tax registration, understanding the tax rate, or exploring exemptions available to Free Zone companies, we provide comprehensive support. This blog will cover everything you need to know about corporate tax for offshore companies, including the taxable income criteria, tax treaties, the registration timeline, and how Young & Right can assist with your corporate tax needs.

Corporate Tax Rate for Offshore Companies in the UAE

Under the new corporate tax law in the UAE, offshore companies are subject to a 9% corporate tax rate on profits exceeding AED 375,000. This is in line with the UAE’s broader efforts to diversify its economy. However, if an offshore company’s profits fall below the AED 375,000 threshold, it benefits from a 0% corporate tax rate, which encourages businesses to operate in the UAE while maintaining their global operations.

It is important to note that the 0% tax rate only applies to qualifying income. Non-qualifying income — such as income derived from activities outside of the designated exempt categories — may still be subject to the standard 9% corporate tax rate.

What Is a Qualifying Free Zone Person?

A Qualifying Free Zone Person refers to a business or entity that is registered in a UAE Free Zone and meets specific criteria set by the UAE's corporate tax law. These entities are eligible for certain tax benefits, such as the 0% corporate tax rate on qualifying income. To qualify, the business must conduct permitted activities within the Free Zone and meet the substance requirements, meaning they must have an actual physical presence, such as employees and office space, within the Free Zone. Additionally, the business must ensure its operations align with the guidelines set by the Federal Tax Authority (FTA), which includes maintaining proper records and complying with tax registration and filing requirements.

When businesses register an offshore company in a Free Zone, they must ensure that their operations are in line with the interpretations and analyses of corporate tax provisions to qualify for tax exemptions. This involves understanding the full scope of corporate tax taking into consideration factors like income, expenses, and eligible activities. Companies seeking to benefit from the 0% corporate tax must submit an application for corporate tax taking these conditions into account, ensuring compliance with the latest legislation for a tax-efficient business model.

JAFZA Offshore Company Incorporation

JAFZA Offshore Company Incorporation refers to the process of setting up a business in the Jebel Ali Free Zone (JAFZA), one of the most prominent and well-regulated Free Zones in the UAE. Offshore companies established in JAFZA are subject to specific regulations and enjoy various benefits, including tax exemptions and asset protection. The incorporation process involves registering with the JAFZA Offshore authorities and meeting certain requirements, such as having a physical office and a designated agent within the Free Zone. JAFZA offshore companies are often used for international trading, investment holding, and asset management purposes, offering advantages such as confidentiality, no requirement for local shareholders, and the ability to conduct business globally. However, despite these benefits, offshore companies in JAFZA must comply with the UAE corporate tax law if their income exceeds the set thresholds, ensuring corporate tax registration and adherence to filing requirements.

Exemptions for Offshore Companies

Certain offshore companies in the UAE may qualify for tax exemptions or reduced tax rates under the new corporate tax law. Key exemptions include:

1. Qualifying Free Zone Companies: Offshore companies established in Free Zones, such as JAFZA Offshore or RAK ICC, that meet the specific conditions set by the UAE tax authority may qualify for the 0% tax rate on qualifying income.

2. Extractive Businesses: Offshore companies involved in activities related to the extraction of natural resources (e.g., oil and gas) may benefit from tax exemptions.

3. Public Benefit Entities: Certain non-profit organizations or public benefit entities engaged in qualifying activities may also be exempt from corporate tax.

Additionally, offshore companies must meet substance requirements, meaning they need to have a physical presence in the UAE, such as employees, office space, and active operations, to qualify for these exemptions.

RAK Offshore Company Formation

RAK Offshore Company Formation is the process of establishing an offshore business entity in Ras Al Khaimah (RAK), one of the most prominent and cost-effective offshore jurisdictions in the UAE. The RAK Offshore setup is popular for businesses looking for asset protection, global trading, investment holding, and international business operations. Companies in RAK Offshore benefit from advantages such as 100% foreign ownership, no import/export duties, and tax exemptions on income and profits, making it an attractive option for international businesses.

However, even though offshore companies in RAK enjoy these benefits, they are still subject to corporate tax if they exceed the profit threshold outlined in the UAE corporate tax law. The corporate tax is a form of direct tax levied on the net income of companies, and offshore companies must ensure they comply with the UAE companies regulations. If applicable, the offshore company has the capacity to submit a tax registration application through the Federal Tax Authority (FTA). This ensures that the company is a legal entity and compliant with corporate tax obligations, taking into consideration any available exemptions. A person shall submit a tax registration to ensure they meet all corporate tax requirements under the applicable legislation.

Corporate Tax Registration for Offshore Companies

Offshore companies operating in the United Arab Emirates are required to register for corporate tax if they exceed the AED 375,000 profit threshold. Registration is done through the Federal Tax Authority (FTA), which oversees all corporate tax activities in the UAE. Even if an offshore company qualifies for the 0% corporate tax rate, it is still required to register for corporate tax with the FTA and comply with tax filing and reporting requirements. This registration application for corporate tax must be completed via the EmaraTax portal, and businesses must ensure that their financial records align with the UAE corporate tax regulations.

All legal entities in the UAE, including Dubai offshore companies, are subject to corporate tax if their profits meet the applicable thresholds. Offshore companies regulations state that companies must be registered properly, and they must ensure that corporate tax is levied on the net income, adhering to all rules and regulations. Even businesses operating in Free Zones with special tax incentives must comply with the corporate tax system and submit a tax registration application as required. This ensures that offshore company owners meet all legal obligations under federal taxes in the UAE, even when they are not subject to personal income tax.

Filing Corporate Tax Returns

After completing the tax registration process, offshore companies must file their corporate tax returns with the FTA within 9 months after the end of their financial year. The return must include details about taxable income, expenses, and qualifying activities. Offshore companies are subject to UAE corporate tax and must ensure compliance with the applicable legislation in the UAE to avoid penalties.

Failure to comply with the filing deadlines can result in significant penalties, including fines for late submissions or inaccurate filings. This can have a direct impact on an offshore company’s ability to operate smoothly, especially if it is found to be subject to income tax or within the scope of corporate tax. To ensure accurate and timely filing, offshore companies should seek assistance from tax experts who are familiar with UAE tax rules and corporate tax requirements. Consulting official sources of information, such as the FTA explained guidelines, is critical in ensuring compliance. Offshore company owners should also remember that they shall submit a tax registration application for corporate tax if they haven’t done so already. By understanding the corporate tax due, including how tax is levied on the net income and the importance of interpreting and analyzing corporate tax, businesses can mitigate risks associated with non-compliance.

How Offshore Companies Can Benefit from Corporate Tax Planning

Effective corporate tax planning is essential for minimizing tax liabilities and optimizing tax savings. Offshore companies can benefit from:

→ Tax Deductions: Offshore companies can claim deductions on business expenses like employee salaries, operating costs, and capital expenditures, reducing their taxable income.

→ Tax Credits: Companies that have paid taxes in other jurisdictions or invested in qualifying activities may be eligible for tax credits.

→ Exempt Income: Income derived from qualifying activities may be exempt from corporate tax, lowering the overall tax exposure.

By working with a professional tax consultant familiar with the UAE’s corporate tax system, offshore companies can implement a strategic tax plan to maximize savings and minimize risks associated with non-compliance.

How Young & Right Help You with Corporate Tax for Offshore Companies in UAE

At Young & Right, we specialize in providing corporate tax advisory services for offshore companies in the UAE. Navigating the complexities of the new corporate tax law can be challenging for businesses, but our team of tax consultants offers expert guidance to ensure compliance with UAE tax laws while minimizing tax liabilities. We help offshore company owners understand the corporate tax rate applicable to their business and provide strategic advice to optimize tax positions.

Whether you are seeking advice on corporate tax registration with the Federal Tax Authority (FTA), preparing for corporate tax returns, or looking to take advantage of tax exemptions for qualifying income, our team is here to guide you every step of the way. We ensure that your business remains compliant with UAE corporate tax regulations, including meeting the substance requirements for Free Zone companies.

We help offshore companies navigate the complexities of taxable income, tax treaties, double tax issues, and permanent establishment in the UAE, ensuring your business remains tax-efficient while avoiding unnecessary penalties. Our team also provides analyses of corporate tax, ensuring your business understands its corporate tax obligations and maximizes opportunities for growth.

At Young & Right, we make sure your offshore company is registered in a Free Zone or UAE jurisdiction in compliance with the federal corporate tax rules, helping you submit your tax registration application on time. Whether you're dealing with income tax, tax registration numbers, or need assistance with taxation of corporations and businesses, we offer the expert tax services you need to succeed in the UAE.

Conclusion

The introduction of corporate tax for offshore companies in the UAE marks a significant change in how businesses operate within the country. However, with the right tax planning and expert guidance, offshore companies can still benefit from favorable tax rates and exemptions, particularly if they meet the criteria for being a qualifying free zone person or operate within a UAE Free Zone. At Young & Right, we specialize in ensuring your offshore company remains compliant with the UAE corporate tax system, whether it’s handling company formation, tax registration, or navigating complex regulations like the double tax treaty and the status of offshore companies.

Our team of tax experts helps you understand the scope of corporate tax, ensuring your business activities, whether in Jebel Ali or other Free Zones, align with UAE corporate tax regulations. We guide you through tax registration applications, compliance with the FTA, and provide ongoing support to ensure that you maximize tax savings while avoiding penalties. Whether you are a juridical person or a natural person conducting business in the UAE, Young & Right is here to help you optimize your tax position, ensuring that your offshore company operates efficiently within the UAE's corporate tax framework.