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UAE Cabinet Decision No. 55 of 2023 on Qualifying Income and UAE Ministerial Decision No. 139 of 2023 on Qualifying Activities and Excluded Activities
UAE Cabinet Decision No. 55 of 2023 on Qualifying Income and UAE Ministerial Decision No. 139 of 2023 on Qualifying Activities and Excluded Activities
The UAE Cabinet came out with Cabinet Decision No. 55 of 2023 on specifying the “Qualifying Income” earned by a Qualifying Free Zone Person coupled with Ministerial Decision No. 139 of 2023 defining Qualifying Activities and Excluded Activities under UAE Corporate Tax Law.
Some of the key highlights of the decision:
Qualifying Income
The decision spells out what is “Qualifying Income” earned by Qualifying Free Zone Person (QFZP) eligible for 0% Corporate Tax as follows:
- Income derived from transactions with other Free Zone Person, except income from Excluded Activities will be taxable at 0%. Hence, income earned from Excluded Activities will be taxed at 9%.
- Income earned from transactions with a Non-Free Zone Person (i.e., Export and Local Sales in UAE Market) from Qualifying Activities (excluding Excluded Activities) will be taxable at 0%, while income earned from Non-Qualifying Activities will be taxed at 9%.
Non-Qualifying Income Threshold (De minimis Requirements)
The decision specifies that the non-qualifying revenue derived by a Qualifying Free Zone Person in a Tax Period should be lower of 5% of their total revenue or AED 5,000,000.
Domestic PE and Foreign PE
The decision stipulates any income attributable to the Domestic PE and Foreign PE of a Qualifying Free Zone Person shall be considered as Taxable and taxed at 9%. Additionally, such an establishment is regarded as a separate entity and is considered a Related Party of the QFZP.
Income from Immovable Property
- Any income derived from transactions with a Non-Free Zone Person from the use of Immovable Property located in a Free Zone which is exclusively used for Business Activity will be taxable at 9%, while any income earned from transactions with a Free Zone Person in respect of such immovable property will be taxed at 0%
- Income derived form from the use of Immovable Property located in a Free Zone which is not used for Business Activity will be considered as Taxable and taxed at 9%.
Consequences of Non-compliance
- A Qualifying Free Zone Person must meet the conditions set out in Article 18 of the Corporate Tax Law as well as De minimis requirements. In case of Non-compliance at any time during the Tax Period, it will cease to be a QFZP from the beginning of that Tax Period and for subsequent four (4) Tax Periods.
The Ministerial Decision No. 139 of 2023 defines the “Qualifying Activities” and “Excluded Activities” as follows:
- Qualifying Activities: The listed activities include manufacturing and processing of goods, holding shares and securities, ship ownership and operation, regulated reinsurance, fund management, wealth, and investment management, headquarter services, treasury and financing services to related parties, financing and leasing of aircraft, distribution of goods from a designated zone, logistics services, and ancillary activities.
- Excluded Activities: The listed activities include transactions with natural persons (excluding specified qualifying activities), regulated banking activities, regulated insurance activities (excluding specified reinsurance activity), regulated finance and leasing activities (excluding specified treasury and aircraft financing activities), ownership or exploitation of immovable property (excluding commercial property in a free zone), ownership or exploitation of intellectual property assets, and ancillary activities to the listed activities.
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