Alert UAE Corporate Tax

1)  Introduction

The long-awaited Cabinet Decisions on the tax treatment of free zones in the UAE have been released. Ministerial Decision No. 139/2023 and Cabinet Decision no. 55/2023 clarify the criteria for determining qualifying income that is eligible for beneficial tax rate of 0%. We have provided below the key highlights of the conditions to benefit from the 0% tax rate.

2)  Qualifying income – Taxable at 0%

i. Transactions with FZ Persons

• All incomes except income from “Excluded activities”

ii.  Transactions with Non-FZ Persons

• All income from “Qualifying activities” other than excluded activities.

iii. Other income

     De minimis rules - Non qualifying revenue < lower of the below

• 5% of total revenue

• AED 5 Mn

3)  Deemed non-qualifying income - Taxable at 9%

• Revenue attributable to domestic PE or a foreign PE.

• Revenue from any person in respect of non-commercial property in a FZ.

• Revenue from non-free zone person in respect to commercial property in FZ.

4)  Non-qualifying revenue

• Revenue from excluded activities

• Revenue from non-qualifying activities with non-freezone person.

5)  Qualifying activities

• Manufacturing and processing of goods/ material;

• Holding of shares and other securities;

• Ownership, management and operation of ships;

• Headquarter/ Treasury and financing services to related parties;

• Reinsurance/ Fund management / Wealth and investment management services;

• Distribution of goods/ material in or from designated zone;

• Logistics services.

6)  Excluded activities

• Transactions with natural person subject to certain exceptions.

• Ownership and exploitation of intellectual property.

• Immovable property transactions, excluding those with FZ persons, related to commercial property in FZ.

• Regulated banking, insurance, finance and leasing activities.

7)   How can Middl East Corporate Service's help?

• Evaluating whether a free zone entity is eligible for preferential tax treatment.

• Analyzing income streams to identify and classify income streams to determine which activities qualify 0% tax rate benefit.

• Reviewing the existing practices and assisting in implementation of new policies and practices to align to the tax requirements.