The FZ companies will need robust accounting records for allocating expenses and determine net income from each of the above transaction streams.
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Will free zone companies be required to meet any conditions to be eligible for 0 per cent Corporate Tax?
The Free Zone companies will be required to maintain adequate substance and comply with all regulatory requirements.
Maintaining adequate substance could require meeting the tests of Economic Substance Regulations (ESR) i.e. the presence of adequate manpower, assets and income-generating activities in the UAE. Further, the entity must be directed and managed in the UAE.
Can I or my family members draw salary from the company that I own? Alternatively, can I or my family member charge rent for the premises owned by me but leased to the company?
The policy document recognises that the absence of a personal income taxation in the UAE can generate incentives for individual owners of taxable businesses to erode CT base by making excessive payments to themselves or persons connected with them.
Accordingly, payments or benefits provided by a business to its “Connected Persons” (defined below) will be deductible as expense only if the business can demonstrate that the payment or benefit:
corresponds with the market value of the service provided; and is incurred wholly and exclusively for the purposes of the taxpayer’s business
The business will be required to submit a disclosure containing information regarding their transactions with Related Parties and Connected Persons. All Related Party transactions and transactions with Connected Persons will need to comply with transfer pricing rules and the arm’s length principle. The salaries/rent will be tax free in the hands of the recipients.
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