UAE Corporate Tax Law
Chapter 5 of the UAE Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (‘the CT Law’) provides for ‘Free Zone Person outlines specific provisions concerning the taxation of Free Zone Person effective from tax periods starting on or after 01 June 2023.
Article 3 of the CT Law establishes the tax rates applicable to Qualifying Free Zone Persons (‘QFZP’). A Corporate Tax rate of 0% (Zero percent) is imposed on their Qualifying Income, while a rate of 9% (Nine percent) is applied to their Taxable Income that is not Qualifying Income
To comprehend the applicability of the CT Law to Free Zones, it is crucial to understand key terms as defined in Article 1 of the CT Law. These terms include "Free Zone," "Free Zone Person," "Qualifying Income," and "Qualifying Free Zone Person." A Free Zone Person is a juridical person incorporated, established or otherwise registered in a Free Zone, including a branch of a Non-Resident Person registered in a Free Zone must satisfy the conditions outlined in Article 18 to be classified as a QFZP. Furthermore, to benefit from the tax advantage of a 0% rate, the QFZP must generate Qualifying income.
Article 18 of the CT law describes that a QFZP is a Free Zone Person that meets all of the following conditions:
On 01 June 2023, the Ministry of Finance (‘MoF’) issued two decisions i.e. Cabinet Decision No. 55 and Ministerial Decision No. 139 of 2023 available at https://mof.gov.ae/tax-legislation/ provide detailed information regarding the determination of Qualifying Income for QFZP, as well as outline the activities categorized as Qualifying Activities and Excluded Activities.
In addition to Article 18 of CT Law, a Qualifying Free Zone Person needs to meet the below two additional requirements:
(The above activities can be outsourced to related party or third party in Free Zone provided it is supervised by the QFZP)
Excluded Activities include the following:
Qualifying Activities include the following:
De Minimis Requirements:
The de minimis requirements will be satisfied where non-qualifying Revenue does not exceed 5% of total revenue or AED5,000,000, whichever is lower.
Non-qualifying Revenue is revenue derived from Excluded Activities or activities that are not Qualifying Activities where the other party is a non-Free Zone Person.
A visual representation illustrating the decisions can be described as follows:
Key Takeaway & Way Forward:
Feel free to reach us to resolve your queries regarding the Taxability of a Free Zone person under UAE CT Law.
Manager- Direct Tax
M: +971 52 2500480