Qualifying Activity for UAE Corporate Tax 2024
Understanding Qualifying Activities for UAE Corporate Tax
Corporate tax (CT) is a direct tax imposed on the net income or profit of corporations and other entities. In the UAE, corporate tax is governed by Federal Decree-Law No.60 of 2023, which amends provisions of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.
Starting from the first financial year commencing on or after 1 June 2023, businesses will become subject to UAE Corporate Tax.
Objectives of CT:
The introduction of Corporate Tax in the UAE aims to achieve several objectives:
- Solidify the UAE’s position as a leading global hub for business and investment.
- Accelerate the country’s development and transformation to meet strategic goals.
- Affirm the commitment to international tax transparency standards and prevent harmful tax practices.
The Corporate Tax Law (CTL) was enacted in December 2022 (Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses) and came into effect on 1 June 2023. The primary corporate tax rate is 9%, applicable to income exceeding AED 375,000 (approximately USD 102,000).
Qualifying Activity Income:
Under Article 18 of the CTL, Qualifying Free Zone Persons (QFZP) are subject to a 0% corporate tax rate on qualifying income (Qualifying Activity Income) and 9% on non-qualifying revenue (Non-Qualifying Revenue). Qualifying Income includes the following:
- Income derived from transactions with other Free Zone Persons (excluding income from excluded activities).
- Income derived from transactions with a Non-Free Zone Person, but only for Qualifying Activities that are not Excluded Activities.
- Any other income, provided the QFZP meets the specified de minimis requirements (De Minimis Requirements).
Qualifying Activity:
The following activities conducted by a QFZP are considered Qualifying Activities:
- Manufacturing of goods or materials.
- Processing of goods or materials.
- Holding of shares and other securities.
- Ownership, management, and operation of ships.
- Reinsurance services subject to regulatory oversight in the UAE.
- Fund management services subject to regulatory oversight in the UAE.
- Wealth and investment management services subject to regulatory oversight in the UAE.
- Headquarter services to related parties.
- Treasury and financing services to related parties.
- Financing and leasing of aircraft, including engines and rotable components.
- Distribution of goods or materials in or from a “Designated Zone” to a customer involved in resale, processing, or alteration of the goods or materials.
- Logistics services.
- Any activities ancillary to the activities mentioned above.
In summary, Qualifying Activities for UAE corporate tax include manufacturing of goods or materials, processing of goods or materials, holding of shares and other securities, ownership, management, and operation of ships, reinsurance services, fund management services, and wealth and investment management services.