Does my free-zone company still work now there is corporate tax?
It may, but it is no longer safe to assume it. Gulf jurisdictions moved from no corporate tax to a corporate tax and substance regime in a short period, so a structure designed under the old assumptions was designed against a different rule set. Free-zone treatment carries its own conditions, and treaty access carries different ones again; meeting one does not deliver the other. The sensible step is a re-examination rather than a renewal. List what the company does, where its decisions are taken, and which conditions each benefit depends on, then decide whether the structure still earns its keep.
What does directed and managed locally actually mean in practice?
It means the decisions that matter for the relevant activity are taken in the jurisdiction, by people who are there and competent to take them, with adequate people, premises and expenditure behind the activity. In practice that is a board meeting locally with the analysis in front of it, staff whose work matches the activity described, and costs that look like the activity rather than a fee for an address. The point is to make the paperwork a record of what happened rather than a description of what was intended.
Do I need an office and staff in the free zone?
Adequate premises, people and expenditure are part of what the regimes ask for, and adequacy is measured against the activity rather than against a fixed list. A treasury function and a distribution business will not need the same footprint. The useful exercise is to describe the activity in operational terms first, ask what carrying it on would require if there were no tax question at all, then compare that with what the company has. Outsourcing some functions can be acceptable in places, but it carries conditions of its own and has to be evidenced.
Is annual substance reporting separate from the corporate tax return?
Treat them as separate obligations with separate consequences. Substance regimes are backed by annual reporting of their own, and failures carry their own penalties, so filing a corporate return does not discharge the substance filing. The two also need to tell the same story. A return describing an activity that the substance report does not support is a contradiction sitting in the same administration's file. Build both from one set of facts about what each entity does, and keep the evidence supporting them together rather than in two places.
Will my Gulf company get treaty benefits automatically?
No. Treaty access carries conditions of its own, and they are not the same conditions as free-zone treatment or the local substance regime. A company can satisfy the domestic substance rules and still fail a test applied by the other country, because that country is asking its own question about who is entitled to the income. Work the two analyses separately, and expect the treaty side to be the harder of them, particularly where the income is passive and the company's local functions are thin.
My structure predates corporate tax — should I just renew it?
Renewal is the decision that causes the most trouble here, because it carries forward assumptions that no longer hold. The regime changed quickly, so a structure that was sound when it was built may now depend on conditions nobody has tested. Re-examine it instead: what each entity does, whether the relevant activity is directed and managed locally, what the annual reporting says, and what the free-zone and treaty positions each depend on. The review is cheaper before an authority asks the question than after, and it may end with fewer entities rather than more.
What counts as foreign income, and what is a foreign tax?
Foreign income is income sourced outside the country you are filing in — where the work was done, where the property sits, where the payer is resident, depending on the type. A foreign tax, for credit purposes, is a levy imposed by another country that functions as an income tax and that you were legally required to pay. Consumption taxes, property taxes and most social contributions are not, however real the cost. Sourcing is decided by rule, not by which bank received it. See the foreign tax credit.
What is a double tax treaty and what does it actually do?
It is an agreement between two countries that divides up the right to tax. Article by article it decides which country taxes employment income, dividends, interest, royalties, pensions, property and business profits — and where both may tax, it caps what the source country can withhold and tells the other to give credit. It also breaks residence ties and opens a government-to-government channel for disputes. What it never does is apply itself: a treaty position is claimed. See our treaty work.
