The United Arab Emirates Ministry of Finance has issued two new decisions that specify the main features of the Corporate Tax as it applies to juridical persons operating out of free zones in the UAE.
During a press conference on Thursday, the Ministry announced the two new decisions namely Cabinet Decision No. 55 of 2023 on Determining Qualifying Income and Ministerial Decision No. 139 of 2023 on Qualifying Activities and Excluded Activities.
The Free Zone Corporate Tax regime is available to ‘Free Zone Persons’, which refers to a juridical person that is incorporated or otherwise formed or registered in a Free Zone.
Moreover, the Free Zone Corporate Tax regime is intended to apply only to income derived from activities that are performed exclusively in or from within a Free Zone.
On the other hand, ‘Qualifying Income’ includes income derived from transactions with other Free Zone Persons as well as domestic and foreign sourced income derived from conducting any of the ‘Qualifying Activities’ listed in the related Ministerial Decision.
The ‘Qualifying Activities’ include manufacturing of goods or materials; processing of goods or materials; holding of shares and other securities; ownership, management, and operation of ships; reinsurance services; fund management services that are subject to the regulatory oversight of the competent authority in the UAE; and wealth and investment management services that are subject to the regulatory oversight of the competent authority in the UAE.
To satisfy the de minimis requirements, the non-qualifying revenue earned by a Free Zone Person must not exceed lower of either five percent of their total revenue or AED5,000,000.
Where the de minimis requirements are not met or the Free Zone Person does not continue to meet any of the other qualifying conditions, the Free Zone Person will no longer be able to benefit from the Free Zone Corporate Tax regime for a minimum period of five years.
During this period, the Free Zone Person will be treated as an ordinary Taxable Person and be subject to Corporate Tax at the rate of nine percent on their Taxable Income above AED375,000.
