Ensuring Tax Compliance and Maintaining QFZP Status

Having an office in a UAE Free Zone alone is not enough for a company to maintain its Qualified Free Zone Person (QFZP) status. The company also has to follow certain rules, like the non-qualifying income should be below 5% of total sales (or AED 5 million), meeting transfer pricing rules, and ensuring adequate substance and business activity. In this case, Vertix Auditing helped a logistics company to understand the rules about corporate tax, improve some parts of its operations, and successfully keep its QFZP status to enjoy the 0% corporate tax rate.

Client Background

ABC Logistics FZCO operates from the Jebel Ali Free Zone (JAFZA) and offers storage, re-export, and logistics services to clients across the Middle East, Asia, as well as Europe. The company was able to make AED 8 million in 2024. Most of the money the company earned came from clients outside the UAE or in other Free Zones. The company wanted to make sure it could still keep its Free Zone tax benefits. Therefore, the company contacted Vertix Auditing to provide tax and transfer pricing assistance in order to keep the business secure.

Challenges Faced in QFZP Structuring

The company was in a strong location, but certain compliance risks still posed a threat to its tax-free status:

• The business had clients from different places, including the UAE mainland, which could result in non-qualifying income.
• The company did not have proper transfer pricing records for its dealings with related parties.
• Financial statements were not audited or structured according to IFRS standards.
• No internal tracking system was in place to monitor qualifying income thresholds.

Our Solution to Retain QFZP Status

• We advised the client to discontinue serving mainland UAE clients from the free zone license and shift them to their mainland license. New contracts were focused on Free Zone-based entities and overseas clients to ensure 100% qualifying income.
• We helped show that the company had a real business presence in JAFZA by documenting its full-time staff, active warehouse, and office space that matched its activity license.
• Vertix prepared a detailed file with supporting documents to ensure arm’s length benchmarking of related-party pricing.
• We managed the auditing procedure and updated the client’s accounts to completely follow to IFRS requirements in order to preserve QFZP status.
• We put up a dashboard that tracks both qualifying as well as non-qualifying income in order to avoid problems in the future. It alerts management if there are any changes in the types of customers they deal with.

Results and Client Feedback

The client is pleased with our professional services and has started following the guidelines provided by our tax consultants to secure their qualified free zone person status. Their accounting records, audits, and transfer pricing documentations are now fully compliant and maintained with utmost care.

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