The Federal Tax Authority (FTA) has announced that businesses must complete Corporate Tax registration within 90 days from the Date of Incorporation / MOA.
If a Free Zone Person meets the de-minimis requirement, it may obtain 0% Corporate Tax on its Qualifying Income; any Taxable Income that is not Qualifying Income is subject to the standard 9% rate. A freezone person who is required to become a qualifying freezone person must meet the De minimis requirements defined by the FTA, which allow the person to earn a small amount of non-qualifying income that has no effect on the person's qualifying free zone person status or freezone CT regime.
UAE Corporate Tax in Free Zones
The UAE is a global financial center and a major economic hub in the Middle East, providing multiple benefits to businesses and foreign investors. One of the most significant incentives was the 'zero' tax on earnings earned within the country, with only a few exceptions. In December 2022, the UAE government announced the implementation of a Federal Corporate Tax (CT law), which went into effect on June 1, 2023.
Under the standard Corporate Tax rules, taxable persons eligible for Small Business Relief have 0% on the first AED 375,000 of Taxable Income and 9% on amounts above that threshold; a QFZP’s non-qualifying income is taxed at 9% and QFZPs are not eligible for the AED 375,000 small-business 0% relief. Businesses that are QFZPs having a qualifying income will receive a 0% tax rate on eligible income. To be qualified for this benefit, individuals must meet the conditions imposed by the tax authorities. Any non-qualifying income for QFZPs is taxed at 9%.
De Minimis Requirements UAE
The De Minimis Requirements UAE are met when the Qualifying Free Zone Person's non-qualifying Revenue in a Tax Period does not exceed 5% (five percent) of their total Revenue in that Tax Period, or (five million dirhams), whichever is less.
- 5% Total Revenue
- AED 5,000,000 whichever is less.
Non-Qualifying Revenue
Non-qualifying revenue is revenue obtained during a Tax Period from any of the following:
- Excluded Activities
- Activities that are not Qualifying Activities where the other party to the transaction is a Non-Free Zone Person.
- A Transaction involving a Free Zone Person who is not the benefit recipient of the relevant Services or Goods.
Additional Requirements for Free Zone Persons
Under Ministerial Decision No. 265 of 2023 and FTA guidance, a Free Zone Person must (among other conditions) meet the de-minimis requirement, prepare and maintain audited financial statements, demonstrate adequate substance in the Free Zone, and comply with transfer-pricing and documentation requirements to be a Qualifying Free Zone Person.
Failure to achieve any of the following requirements will result in the taxpayer's loss of Qualifying Free Zone Person status beginning with the relevant Tax Period and continuing for the next four Tax Periods.
| Example 1 | Amount in AED |
|---|---|
| Total Revenue | 140,000,000 |
| 5% of Total Revenue | 7,000,000 |
| Threshold | 5,000,000 |
| NQI Should not be more than | 5,000,000 |
| Example 2 | Amount in AED |
| Total Revenue | 60,000,000 |
| 5% of Total Revenue | 3,000,000 |
| Threshold | 5,000,000 |
| NQI Should not be more than | 3,000,000 |
De Minimis Calculation
De-minimis % = NQI / TI × 100%, where NQI is the Free Zone Person’s non-qualifying Revenue (i.e., revenue from Excluded Activities; activities that are not Qualifying Activities with a Non-Free Zone Person; and transactions with Free Zone Persons where the Free Zone Person is not the beneficial recipient), adjusted to remove revenue attributable to domestic or foreign PEs and other exclusions; TI is total Revenue after the same exclusions.
Revenue attributed to immovable property located in the Free Zone is derived from:
Transaction with Non-Free Persons about Commercial Property
Transaction with any person in relation to immovable property that is not commercial property.
Not to consider for Non-qualifying Revenue and Total Revenue:
Revenue attributed to the Qualifying Free Zone Person's domestic or foreign permanent establishment.
Revenue derived from the ownership or exploitation of intellectual property, except for the Qualifying Income computed in accordance with the Minister’s decision.
Conclusion
Due to our considerable experience and specialized solutions, Reyson Badger is the best partner for handling De Minimis requirements in UAE. Our thorough awareness of local rules, along with a client-centric approach, guarantees that we deliver accurate and efficient services. By working with Reyson Badger, you benefit from our dedication to quality and proven track record of assisting businesses in meeting regulatory requirements, allowing you to focus on growth and success.
