Additional Conditions for Qualified Free Zone Person”
- Adequate Substance in UAE / (or) Outsource provider locally with supervision
- Earning Qualified Income
- Not elected for taxable rate at 9%
- Compliance on transfer prcing
- Requirement of audited financial statements
Corporate Tax applicability for Free Zone person in UAE
Yes, Income derived by a qualified free zone person eligible for 0% tax rate incentives on qualified Income derived from qualified business activities subject to adequate substance test, transfer pricing rules, non-selection of 9% corporate tax rate and as per Article (4) of Cabinet Decision No. 55 of 2023, the amount of non-qualifying revenue derived by the qualified free zone person in a tax period must not exceed 5% of the total revenue in the relevant tax period or AED 5 million, whichever is lower. The qualified free zone person shall be disqualified from such status for the current relevant tax year and subsequent four tax years if the qualified, free zone person does not maintain such threshold.
As per Cabinet Decision No. 55 of 2023, and subject to Clause (2) of this Article and Article (3) of this Decision, the following activities conducted by a Qualifying Free Zone Person shall be considered Qualifying Activities and not Excluded Activities as per Article (3) of this Decision and Ministerial Decision No. 139 of 2023 Regarding Qualifying Activities and Excluded Activities for Federal Decree-Law No. 47 of 2022.
Qualified Activities:
(a) Manufacturing of goods or materials.
(b) Processing of goods or materials.
(c) Holding of shares and other securities.
(d) Ownership, management and operation of Ships.
(e) Reinsurance services that are subject to the regulatory oversight of the competent authority in the State.
(f) Fund management services that are subject to the regulatory oversight of the competent authority in the State.
(g) Wealth and investment management services that are subject to the regulatory oversight of the competent authority in the State.
(h) Headquarters services to Related Parties.
(i) Treasury and financing services to Related Parties.
(j) Financing and leasing of Aircraft, including engines and rotable components.
(k) Distribution of goods or materials in or from a Designated Zone to a customer that resells such goods or materials, or parts thereof or processes or alters such goods or materials or parts thereof for the purposes of sale or resale. 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.
(l) Logistics services.
(m) Any activities that are ancillary to the activities listed in paragraphs (a) to (l) of this Clause.
Excluded Activities:
(a) Any transactions with natural persons, except transactions in relation to the Qualifying Activities specified under paragraphs (d), (f), (g) and (j) of Clause (1) of Article (2) of this Decision.
(b) Banking activities that are subject to the regulatory oversight of the competent authority in the State.
(c) Insurance activities that are subject to the regulatory oversight of the competent authority in the State, other than the activity specified under paragraph (e) of Clause (1) of Article (2) of this Decision.
(d) Finance and leasing activities that are subject to the regulatory oversight of the competent authority in the State, other than those specified under paragraphs (i) and (j) of Clause (1) of Article (2) of this Decision.
(e) Ownership or exploitation of immovable Property, other than Commercial Property, located in a Free Zone where the transaction in respect of such Commercial Property is conducted with other Free Zone Persons.
(f) Ownership or exploitation of intellectual property assets.
(g) Any activities that are ancillary to the activities listed in paragraphs (a) to (f) of this Clause.
Additional Conditions to Qualify as a Qualified Free Zone Person
- Adequate Substance in UAE / (or) Outsource provider locally with supervision
- Earning Qualified Income
- Not elected for the taxable rate of 9%
- Compliance with transfer pricing rules
- Income not attributable to a Domestic Permanent Establishment or a Foreign Permanent Establishment
- Audited financial statements.
- Failing any of the qualifying free persons will cease the qualified free zone person for the current tax period and subsequent four tax period
- Excluding natural persons
Taxable income at a 9% rate
- Income attributable to a Domestic Permanent Establishment or a Foreign Permanent Establishment
- Income from Excluded Activities
- If Attributable to Domestic Permanent Establishment and Foreign Permanent Establishment is taxable income at 9% subject to de minimis -AED 5 Million Ceiling of non-qualified income.
Tax applicability on Income derived from immovable Property located in a Free Zone.
Income derived from the immovable Property in the Free zone shall be taxable on the following conditions.
- Transactions with Non-Free Zone Persons in Respect of Commercial Property.
- Dealings with any Person in respect of immovable Property that is not Commercial Property
Commercial Property shall include any immovable property or part thereof:
Used exclusively for a Business or Business Activities.
Not used as a place of residence or accommodations, including hotels, motels, bed and breakfast establishments, serviced apartments and the like.
Commercial property transactions income, Free zone person giving to another free zone taxable at 0% rate