0% Corporate Tax Rate Under The Free Zone Corporate Tax Regime
The UAE Federal Tax Authority has recently released a corporate tax (CT) bulletin providing guidance on the free zone CT regime under the CT law. Guidance provided in such bulletin relating to the applicability of 0% CT rate to free zone persons is summarized below:
- The 0% CT rate under the provisions of CT law relating to free zones applies to transactions and activities performed from within the prescribed geographical areas of free zones (including designated zones).
- Qualifying income of a qualifying free zone person which is subject to 0% CT rate is income derived from the following sources:
- transactions with other free zone persons, provided those free zone persons are the beneficial recipients of the transactions and the transactions do not relate to excluded activities;
- transactions relating to qualifying activities that are not excluded activities;
- income derived from the ownership or exploitation of qualifying intellectual property; and
- any other income, provided the de minimis requirements are met i.e., the non- qualifying revenue derived by the qualifying free zone person in a tax period does not exceed the lower of 5% of its total revenue in that tax period or AED 5 million.
- Notwithstanding the above, income from the following sources, even if it falls within the list above will not be treated as qualifying income and will be taken into account in determining the qualifying free zone person’s taxable income that is subject to the 9% CT rate (unless the income is exempt from CT under another provision of the CT law):
- income attributable to a foreign permanent establishment;
- income attributable to a domestic permanent establishment;
- income from immovable property (other than commercial property located in a free zone when the income arises from a transaction with a free zone person); and
- income from the ownership or exploitation of intellectual property (other than qualifying income from qualifying intellectual property).