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Navigating Corporate Tax Incentives for Qualifying Free Zone Entities in the UAE_

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In today’s dynamic economy, understanding corporate taxation is crucial for businesses seeking strategic benefits. The UAE’s recent Ministerial Decision No. 139 of 2023 is a significant development that defines criteria and rules for Qualifying Free Zone Persons under the Corporate Income Tax Law. This decision introduces a framework for identifying these persons, setting conditions, and highlighting activities eligible for tax incentives. Our overview clarifies these aspects, making it easier to grasp the rules, conditions, and activities that offer tax benefits.

Corporate Tax for Qualifying Free Zone Persons

A Qualifying Free Zone Person refers to an entity meeting specific conditions as stipulated in this Decree-Law, thereby subject to a Corporate Tax rate of 0% on their taxable income.

Qualifying Conditions for Free Zone Person

Article 18 of the Corporate Tax law outlines the criteria for a Qualifying Free Zone Person as follows:

  1. A Qualifying Free Zone Person must fulfill the following requirements:
    • a. Maintain a substantial presence within the State.
    • b. Generate Qualifying Income as defined in a Cabinet decision based on the Minister’s recommendation.
    • c. Opt not to be subject to Corporate Tax under this Decree-Law.
    • d. Adhere to the Arm’s Length Principle and Transfer Pricing Documentation specified in this Decree-Law.
  2. Should a Qualifying Free Zone Person fail to meet any of the aforementioned standards during a Tax Period, their status as a Qualifying Free Zone Person will cease starting from that Tax Period.
  3. If a person fails to meet the criteria mentioned earlier, the Minister has the authority to determine the conditions or situations leading to the continuation or termination of their Qualifying Free Zone Person status, effective from a different date.
  4. A Qualifying Free Zone Person’s taxation at a rate of 0% will remain applicable for the duration of the tax incentive period outlined in the relevant legislation of the Free Zone where the entity is registered. This period can be extended according to conditions established in a Cabinet decision based on the Minister’s suggestion, with a maximum duration of fifty (50) years.

Activities of Qualifying Free Zone Persons

According to Ministerial Decision No. 139 of 2023, the subsequent activities qualify an entity as a Qualifying Free Zone Person:

Qualifying Activity

  1. Fund management services subject to regulatory oversight by the State’s competent authority.
  2. Provision of treasury and financing services to Related Parties.
  3. Manufacturing of goods or materials.
  4. Ownership, management, and operation of Ships.
  5. Holding of shares and other securities.
  6. Logistics services.
  7. Financing and leasing of Aircraft, including engines and rotable components.
  8. Reinsurance services under regulatory oversight by the State’s competent authority.
  9. Processing of goods or materials.
  10. 10.Provision of headquarters services to Related Parties.
  11. 11.Wealth and investment management services subject to regulatory oversight by the State’s competent authority.
  12. 12.Ancillary activities to Manufacturing, treasury, and financing services of related parties.
  13. 13.Distribution of goods or materials within or from a Designated Zone to a customer engaging in resale, alteration, or processing of such goods or materials.

For Qualifying Activity 13, the distribution of goods or materials must be conducted within or from a Designated Zone, and the entry of these goods or materials into the State should occur through the Designated Zone.

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