Whilst we are still analyzing and digesting
yesterday’s Cabinet and Ministerial Decisions, it appears that the
determination of Qualifying Income for Qualifying Free Zone Persons will be a
notably complex task.
The DLA Piper tax team has developed a decision tree to help Free Zone Entities navigate the complex task of determining Qualifying Income, eligible for the 0% CIT rate.
Some of our initial thoughts around the new clarifications:
▶ Qualifying Free Zone Entities will need to thoroughly analyze the nature and origin of their income sources to categorize their income for CIT purposes and determine whether they are eligible for the 0% tax rate.
▶ On certain items, the new regulations appear to deviate from the principles set out in last year’s Public Consultation Document.
▶ The 𝘥𝘦 𝘮𝘪𝘯𝘪𝘮𝘪𝘴 rule constitutes a significant limiting factor in terms of the amount of non-Qualifying Income that a Qualifying Free Zone Person will be allowed to receive. Exceeding the 𝘥𝘦 𝘮𝘪𝘯𝘪𝘮𝘪𝘴 threshold (i.e., the lower of 5% of total revenue or AED 5 million), the entity loses its Qualifying Free Zone Person status for the current and following four tax periods.
▶ Overall, the regulations appear to limit the scope of the 0% tax regime for Qualifying Free Zone Persons.
▶ Businesses should revisit any previous tax advice in light of the latest decisions pertaining to Qualifying Income to ensure their strategies remain valid.
Disclaimer: This material is developed by DLA Piper Middle East LLP and may not be copied or reproduced without prior consent from DLA Piper Middle East LLP. This material provides general information on certain aspects of the UAE's Corporate Income Tax laws. It is not an official interpretation or comprehensive analysis. For authoritative information, rely on official publications from the UAE Ministry of Finance and Federal Tax Authority. This does not constitute legal or tax advice. Consult with professional tax lawyers or advisors for specific questions.
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