Understand Qualifying Income in UAE Corporate Tax

What is Qualifying Income?

Qualifying Income is received by a Qualifying Free Zone Person exempting from corporate taxes. Qualifying Income includes revenue from transactions with other Free Zone entities, income from dealings with Non-Free Zone Persons related to Qualifying Activities, and other income that meets specific de minimis requirements. Non-qualifying revenue is taxed at the standard rate of 9%. Non-Qualifying Revenue is obtained in a Tax Period from any of the following: 

• Excluded activities
• Activities that do not meet the qualifying requirements when the other party is someone who is not in a free zone

Criteria For  Qualifying Income: 

The following standards establish the qualifying income for the qualifying free zone person, per Cabinet Decision No. 55 of 2023. 

1. Income derived from transactions with other Free Zone Persons, except for income derived from Excluded Activities
2. Income derived from transactions with a Non-Free Zone Person, but only in respect of Qualifying Activities that are not Excluded Activities
3. Any other income provided that the Qualifying Free Zone Person satisfies the requirements of De Minimis.
4. If the beneficiary recipient of the relevant services or goods is a free zone person, the income will be considered derived from transactions with a free zone person.

Beneficial Recipient:

A person can use and enjoy services or goods without a legal or contractual obligation to supply them to another person. You need to determine Qualifying Income, particularly in transactions between Free Zone Persons and Non-Free Zone Persons related to Qualifying Activities.

De Minimis Requirements

When the qualifying free zone person’s non-qualifying revenue for a given UAE Corporate Tax period does not exceed the total revenue percentage of that qualifying free zone person for that tax period or the amount selected by the minister, whichever is lower. 

When determining non-qualifying revenue and total revenue, Revenue payable to immovable property in a Free Zone is obtained from the following transactions:

• Transactions involving Commercial Property with Non-Free Zone Parties 
• Transactions with immovable property that isn’t commercial property with a person 

Corporate Tax in Free Zones and Qualifying Income

Qualifying Free Zone Persons (QFZPs) can benefit from a 0% tax rate on qualifying income. To qualify for eligible QFZP, entities must meet specific criteria such as maintaining adequate substance, deriving qualifying income, complying with transfer pricing rules, and ensuring non-qualifying revenues are below set limits. Qualifying Income includes revenue from transactions with other Free Zone Persons and Non-Free Zone Persons engaging in Qualifying Activities. A 0% corporate tax is applied for Qualifying free zone persons when one should have revenue under Qualifying income regulations of CT law. One who doesn’t fulfill the conditions of the Qualifying income shall be liable to the 9% corporate tax and not be considered a qualifying free zone person.

Corporate Tax Services in UAE For Free Zone:

BRISK offers comprehensive corporate tax services for Free Zones. BRISK’s Corporate Tax Services assist businesses in optimizing their tax strategies, ensuring compliance with regulations, and maximizing financial efficiency within the unique Free Zone framework. These services are essential for companies operating within Free Zones to minimize tax liabilities and enhance profitability. BRISK corporate tax services include:

• Impact Assessment for Corporate Tax 
• Corporate Tax Registration & Filing
• Deferred Tax and Transfer Pricing Assessment
• Accounting & Bookkeeping
• Corporate Tax Compliance
• Corporate Tax Planning & Advisory

Do you have any questions about Corporate Tax in the Free Zone? 

 For assistance, contact BRISK.