KHALEEJ TIMES, Saturday, Jun 03, 2023 | Thul-Qidah 14, 1444
UAE issues 2 new decisions on corporate tax regime in free zones
Emirates:
The UAE’s Ministry of Finance on Thursday released two new decisions
related to qualifying income and qualifying activities for corporate tax in free
zones.
Cabinet Decision No. 55 of 2023 determines ‘qualifying income’ while Ministerial
Decision No 139 of 2023 highlights qualifying activities and excluded
activities.
Haji Al Khouri, undersecretary of the Ministry of Finance, said the corporate
tax, which came into effect on June 1, will diversify the federal government’s
revenues and help construct and develop strategic projects for a sustainable
future.
The ministry said the free zone tax regime is applicable only within the
prescribed geographical areas of the free zone and applies only to income
derived from activities performed in or from within a free zone.
It further explained that the qualifying free zone firms will benefit from the
zero per cent corporate tax rate on income earned from transactions with a
person located in the mainland UAE or a foreign jurisdiction as well.
This qualifying income also includes the income derived from transactions with
other free zone persons as well as domestic and foreign-sourced income derived
from conducting any of the qualifying activities listed in the ministerial
decision.
However, all free zone companies should register as they will be subject to
penalties after a year for failure to do so.
Exemptions
The ministry listed nearly a dozen qualifying activities which include the
manufacturing of goods or material; the processing of goods or material;
reinsurance services; holding of shares and other securities; ownership,
management and operation of ships; fund management services; wealth and
investment management services; headquarter services to related parties;
treasury and financing services to related parties; financing and leasing of
aircraft including engines and retables; distribution of goods or materials in
or from a designated zone; logistics services; and any ancillary activities to
the activities listed above.
However, the companies can contact free zone authorities for more details and
clarifications, said Shabana Begum, executive director of the tax policies
sector at the Ministry of Finance.
The ministry added that income from certain specific excluded activities will
not be treated as qualifying income regardless of whether the income is derived
from a free zone person or as part of undertaking a qualifying activity.
The ministry has set a de
minimis requirement of Dh5 million or five per cent of total revenues for
qualifying firms.
Arun Leslie John, chief market analyst at Century Financial, said giving
exemptions to free zones will help the UAE retain competitiveness, as its GCC
neighbours are offering incentives to lure international firms to their
countries.
“This will particularly help Dubai retain its status as an international trade
and finance hub. By providing a conducive business environment and facilitating
access to the market, companies can freely transfer funds in and out of the
country without any restrictions or limitations,” he said.