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Aug 21
The UAE has excluded 7 activities under the name “excluded activities” from being subject to the 0% corporate tax rate for free zones, as the annual income of these activities that exceeds 375 thousand dirhams will be subject to a 9% tax rate.
Ministerial Resolution No. (139) of 2023 regarding eligible activities and activities excluded for the purposes of Federal Decree-Law No. (47) of 2022 regarding corporate tax, stated that the seven activities include: transactions with natural persons, with the exception of transactions related to specific qualified activities such as (owning and managing Ship operation, money management services that are subject to regulatory oversight by the competent authority in the country, wealth and investment management services that are subject to regulatory oversight by the competent authority in the country, aircraft financing and leasing, including engines and recyclable parts).
Mohamed Helmy
Banking activities existing in free zones that are subject to regulatory oversight by the competent authority in the country are also considered “excluded activities” and will be subject to 9% of the tax, along with insurance activities subject to regulatory oversight by the competent authority in the country with the exception of reinsurance services that are subject to for regulatory oversight itself.
and financing and leasing activities that are subject to regulatory control by the competent authority in the country, with the exception of treasury services and financing for related parties, financing and leasing of aircraft, including engines and recyclable parts.
Owning or exploiting real estate with the exception of commercial real estate located in a free zone in the event that transactions are conducted in relation to such real estate with other persons in the free zone, and owning / or exploiting intellectual property assets, or any activities supporting the aforementioned activities.
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eligible activities
“Qualifying activities” carried out by a person based in the free zone will be subject to 0% tax, and these categories include: manufacturing goods or materials, processing goods or materials, holding stocks and other securities, owning, managing and operating ships, and reinsurance services that are subject to regulatory control. By the competent authority in the country, money management services that are subject to regulatory oversight by the competent authority, wealth and investment management services that are subject to regulatory oversight by the competent authority, and head office services for related parties.
It was also considered among the “eligible activities”, which will be subject to tax in free zones at a rate of 0%, treasury and financing services for related parties, financing and leasing of aircraft including engines and recyclable parts, and the distribution of goods or materials in / or from a specified area to a customer who resells such goods, materials or part thereof, or modify such goods, materials or part thereof, for the purposes of sale or resale, logistics services, and any activities ancillary to the above-mentioned activities if it does not perform a separate function, but is necessary to perform Main qualifying activity.
Many questions and inquiries have come to «Gulf» from companies and individuals who work in free zones, about the possibility of subjecting their businesses to a corporate tax of 9% on their income generated in these zones.
The UAE has 44 free zones, distributed among its various emirates, but not all of them are designated zones subject to 0% corporate tax, while designated and unspecified free zones are subject to 9% corporate tax on unqualified income.
the free zone
Muhammad Helmy, the tax agent, said: “The free zones in the UAE are those that are located in a designated geographical area, which is determined by a decision issued by the Council of Ministers based on the minister’s proposal.”
Helmy added, “According to the corporate tax law, the person residing in the free zone is the legal person that was established, established in it, or registered in any other way in it, and includes the branch of the non-resident person registered in the free zone,” explaining that the existing qualified person In the free zone, he who meets the conditions stipulated in Article 18 of the Corporate Tax Law, and is subject to tax at the rate of 0%.
Helmy confirmed that the “corporate tax” law permitted a qualified person residing in the free zone to benefit from a preferential corporate tax rate of 0% over the qualified income only, if the following conditions apply to him: maintaining a realistic and sufficient presence in the UAE, and to achieve a qualified income, He did not choose to be subject to corporate tax at the basic rates, and he also complies with the transfer pricing requirements under the law, and fulfills other conditions specified by the minister, explaining that the disqualified income does not exceed 5% or 5 million dirhams of gross income, whichever is less.
Helmy explained that if the qualified person existing in the free zone does not meet any of the aforementioned conditions, or chooses to submit to the regular system of corporate tax, he will be subject to the basic tax rate of 9% from the beginning of the tax period in which he did not meet these conditions.
Helmy pointed out that the “qualified income”, which is any income achieved by a qualified person existing in the free zone, will be subject to corporate tax according to the stipulated percentage, which is: 0% on qualified income, and 9% on taxable income that is not qualified income.
Three classes
Muhammad Helmy indicated that the income that is eligible for a qualified person residing in the free zone includes 3 categories, provided that this income is not related to a permanent local establishment, a permanent foreign establishment, or to the ownership or exploitation of real estate.
Income generated from transactions with existing persons in the free zone, with the exception of income generated from excluded activities. Income generated from transactions with existing persons in the free zone is considered the beneficiary of the relevant services or goods.
and income generated from transactions with a person who is not located in the free zone, only in connection with qualifying activities
