The UAE Ministry of Finance has announced the implementation of a new Corporate Tax regime, effective immediately, with the release of two key decisions. Cabinet Decision No. 55 of 2023 focuses on Determining Qualifying Income, while Ministerial Decision No. 139 of 2023 covers Qualifying Activities and Excluded Activities.
Under this regime, Free Zone Persons, referring to juridical entities registered within a Free Zone, can benefit from a zero percent tax rate. However, this tax advantage only applies to income generated from activities conducted exclusively within the Free Zone areas.
The definition of “Qualifying Income” encompasses revenue derived from transactions with other Free Zone Persons, as well as domestic and foreign sourced income related to designated “Qualifying Activities.” These activities include manufacturing, processing, holding of shares, reinsurance services, fund management services, and more.
Certain activities, known as “Excluded Activities,” are not considered “Qualifying Income” regardless of whether they are conducted by a Free Zone Person. Such activities include transactions with natural persons, regulated financial services, income from intangible assets, and income from immovable property.
To qualify for the zero percent tax rate, Free Zone Persons must meet de minimis requirements, ensuring that non-qualifying revenue does not exceed 5 percent of total revenue or AED 5 million.
Failure to meet the qualifying conditions or de minimis requirements will result in the Free Zone Person being subject to the regular UAE Corporate Tax regime at a rate of 9 percent for a minimum period of five years.