Corporate tax in UAE

A Designated Zone (E.g., JAFZA, DAFZA, etc.,) is a free zone but a free zone need not be a Designated Zone (E.g., DMCC, IFZA, DSO) 

Only Income generated from “Qualifying activities” (Qualifying income) by a free zone person (Qualifying free zone person) is zero-rated for UAE CT 

Income earned from these 13 activities that are listed under Article 2 Ministerial Decision 139 of 2023, are considered as “Qualifying Activities”. 

Activities that are not listed under Qualifying Activities either fall under excluded activities or Non-qualifying activities. Income from such activities is subject to ‘De minimis’ requirements. That is, such income should be lower than 5% of the total revenue or AED 5 million to remain as a Qualifying free zone person. Refer Article 4

Excluded activities are listed under Article 3 of Ministerial Decision 139. Excluded activities are part of Non-qualifying income. Non-qualifying activities are the activities where the other party to the transaction is a Non-qualifying free zone person. (For example, the distribution of goods is a qualifying activity but if done to a Non-qualifying free zone person, it becomes a Non-qualifying activity)

The activity of distributing goods or materials must be undertaken “IN” or “From” a Designated Zone and the goods or materials entering the “State” “must be imported through the Designated Zone “ Therefore, only the following trading activities are treated as qualified activities. 

• Sold to a DZ person, 
• imported by a mainland person 
• Exports from Dz 

Refer to Article 2 (1) (k) and Article 2 (3) of Ministerial Decision 139

No. Only trading activity done “IN” and “FROM” a Designated zone are zero rated from CT. Refer to Article 2 (1) (k) and Article 2 (3) of Ministerial Decision 139 

As per Article 3 (1) (a) of Cabinet Decision) income derived “from a free zone person” falls under zero-rated activities. Hence, services provided to a free zone person by a free zone person will be zero rated, provided income derived from services provided to a Non-free zone person falls under the De-minimis limit mentioned under Question no 3. 

No. As per Article 3 (1) (a) of Cabinet Decision) income derived “from a free zone person” only falls under zero-rated activities. (De-minimis limit can be considered for services provided to a Non-free zone person). Therefore services provided to a foreign person will be subject to UAE CT. 

Not zero-rated. As per Article 1 of Cabinet Decision 55 (definitions), a place of the presence of a qualified free zone person outside the free zone is treated as Domestic Permanent Establishment as per Article 4 (4) and subject to the provisions of Article 14 of Decree-law (Treated as a permanent establishment of a Non-resident person).

As per Article 3 (1) of the Cabinet Decision, income attributable to a Domestic Permanent Establishment (can be a branch or a related party) shall not be included in qualifying income. Article 3 (5) of Cabinet Decision 55 further clarifies this point. Hence income from a branch in the mainland is allowed only subject to the limit of De minimis explained under Question 3 above. 

The free zone entity is treated as a juridical person for UAE CT purposes. Therefore, will be eligible for a zero rate of tax on “Qualifying income” earned by the branch and also subject to the De Minimis limit under Article 4 of the Cabinet Decision. 

Apart from meeting the conditions set out in Cabinet Decision No 55 and Ministerial Decision no 139, a qualifying free zone must, 

1. Maintain adequate substance. 
2. Comply with Arm’s length principle and transfer pricing documentation and
3. Has not elected to be subject to corporate tax by choice. 
4. Its non-qualifying revenue does not exceed de minims limit. 
5. Prepare audited financial statements. 

(Refer to Article 18(1) of decree law and Article 5 (1) of Ministerial decision 139 of 2023.

1. A Qualifying Free Zone Person shall undertake its core income-generating activities in a Free Zone and, having regard to the level of the activities carried out, have adequate assets, an adequate number of qualified employees, and incur an adequate amount of operating expenditures.
2. Activities can be outsourced to a Related Party in a Free Zone or a third party. In a Free Zone, provided the Qualifying Free Zone Person has adequate supervision of the outsourced activity.

Refer to Article 7 of Cabinet Decision 55 of 2023. 

The qualifying free zone person shall cease to be a qualifying free zone person 

1. From the beginning of the relevant tax period and 
2. For the subsequent 4 tax periods. 

Refer to Article 5 (2) of Ministerial Decision 139 of 2023.