To under if the Free Zone Entities are required to prepare and maintain audited financial statements, it is essential to understand the nature of Free Zone Companies. Additionally, this exemption is based on Ministerial Decision No 82 of 2023, which outlines exceptions from Tax Registration. 

A Free Zone Company can be divided into these categories: 

• Qualifying Free Zone Company 
• Non- Qualifying Free Zone Company 

Are Qualifying Free Zone Companies are required to prepare and maintain audited financial statements? 

1. QFZ is the entity that meets specific requirements, including adequate economic substance and adherence to the arm’s length principle. 
2. It is eligible for a 0% Corporate Tax rate in the UAE if it generates Qualifying Income. 

It is under the obligation to prepare and maintain audited financial statements. 

There is no revenue threshold specified for Qualifying Free Zone Companies on preparation of FS. 

Are Non-Qualifying Free Zone Companies are required to prepare and maintain audited financial statements? 

1. Non-QFZ does not meet the criteria outlined for Qualifying Free Zone Companies. 
2. They are not required to prepare and maintain audited financial statements. 

Corporate Tax and Audited Financial Statements: 

Qualifying Free Zone Companies, enjoying a 0% Corporate Tax rate, must comply with audited financial statement requirements. 

Non-Qualifying Free Zone Companies are exempt from this obligation as per the Ministerial Decision. 

Important Note: The distinction between Qualifying and Non-Qualifying Free Zone Companies is crucial in determining the requirement for audited Financial Statements and associated tax implications in the UAE. 

Practical Case Study 

Background: XYZ LLC is a business process outsourcing company with operations in a UAE free zone. As they approach the end of their financial year, they are unsure about preparation of audited Financial Statements. They seek clarity on whether they must prepare and maintain audited Financial Statements as a Free Zone Company in the UAE. 

Company Status: 

• Nature of Business: XYZ LLC is involved in providing various BPO services, including customer support, data entry, and back-office support. 
• Free Zone Location: The company operates within a UAE Free Zone. 

Key Questions: 

• Does XYZ Global Services qualify as a Qualifying Free Zone Company? 
• What are the implications if they are a Qualifying Free Zone Company? 
• What if XYZ Global Services does not meet the criteria for being a Qualifying Free Zone Company? 

Solution: 

• Qualifying Free Zone Company Criteria: The UAE Corporate Tax Law has defined Qualifying Free Zone Companies as those meeting specific requirements, such as having adequate economic substance and adhering to the arm’s length principle. XYZ LLC meet all the necessary criteria to be considered a Qualifying Free Zone Company. 

• Implications for Qualifying Free Zone Companies: 
  • XYZ LLC, as a Qualifying Free Zone Company, enjoys a significant benefit: a 0% Corporate Tax rate in the UAE. 
  • However, this favorable tax treatment comes with a responsibility. They are liable to prepare and maintain audited Financial Statements to ensure transparency and compliance. 

Conclusion:  

In the case of XYZ LLC, their status as a Qualifying Free Zone Company, meeting all the necessary criteria and enjoying a 0% Corporate Tax rate, obligates them to prepare and maintain audited Financial Statements. This provides the importance of understanding and complying with the specific regulations governing Free Zone Companies in the UAE.