Maintain your tax compliance through Filings.ae platform at an affordable price. Get support from Experienced Accountants for bookkeeping, financial statement preparation, VAT and Corporate Tax filing.
Maintain your tax compliance through Filings.ae platform at an affordable price. Get support from Experienced Accountants for bookkeeping, financial statement preparation, VAT and Corporate Tax filing.
Maintain your tax compliance through Filings.ae platform at an affordable price. Get support from Experienced Accountants for bookkeeping, financial statement preparation, VAT and Corporate Tax filing.
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Manage your business and track services |
Manage your business and track services |
The Ministry of Finance and the Federal Tax Authority (FTA) jointly introduced a 9% corporate tax system in the UAE in June 2023. Freezone businesses only have 0% corporate tax if they are QFZPs (Qualified FreeZone Persons). To be a QFZP, one has to meet certain criteria outlined by the Federal decree law of corporate tax. Business revenue must come under the Qualifying income regulations of CT law to get tax exemption in the UAE. In this article, you can get detailed information regarding Qualifying Income in the UAE.
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Qualifying Income refers to profits earned by businesses operating within designated Free Zones subject to a 0% tax rate. This benefit applies to income generated through specific activities, including transactions with other Free Zone businesses and certain qualifying activities with non-Free Zone entities. There are also exclusions, so not all Free Zone income qualifies for the tax exemption.
The following four income source categories are considered qualifying income and eligible for a 0% corporate tax rate.
Also read: Corporate tax applicable for freezone companies
According to Ministerial Decision No. (139) of 2023, the following are the qualifying and excluded business activities that determine your income and whether it qualifies for a 0% tax rate.
If your income is derived from the excluded activities, it is considered taxable income subject to the standard 9% corporate tax rate.
Any income derived from the domestic or foreign permanent establishments of the freezone business will not be considered Qualifying Income, and will be taxed as if it belongs to a separate and independent person related to the Qualifying Free Zone Person.
Consider the following to know whether the income derived from immovable property is qualifying income or not.
Qualifying Free Zone Persons (QFZPs) can enjoy a 0% tax rate on their Qualifying Income. However, they can earn some income that doesn't qualify for the 0% rate as long as it stays within certain limits. The de minimis rule defines these limits.
If the de minimis threshold is exceeded, the Free Zone Peron's status as a QFZP will be lost. This means the Free Zone Person's income will be taxable and taxed according to Article 3 (1) of the CIT law. An income lower than AED 375,000 is taxable at 0%, while it is taxed at 9% if it is above the threshold.
In summary, Qualifying Income in the UAE refers to profits earned by Free Zone businesses that enjoy a 0% corporate tax rate. This applies to specific activities within the Free Zone, qualifying activities with non-Free Zone entities, and limited amounts of non-qualifying income. However, income from excluded activities, non-commercial properties, or outside the Free Zone is taxable at the standard 9% rate. Understanding these categories and the de minimis rule is crucial for Free Zone businesses to optimize their corporate tax benefits.
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