New UAE Corporate Tax Decisions Provide Clarity for Free Zone Companies

Published: Mon 6 Nov 2023, 5:57 PM
Last updated: Mon 6 Nov 2023, 5:58 PM

The Ministry of Finance in the United Arab Emirates (UAE) recently announced new corporate tax decisions aimed at providing more clarity for free zone companies. These decisions, including Cabinet Decision No. 100 of 2023 and Ministerial Decision No.265 of 2023, determine qualifying income and eligible activities for tax benefits.

The purpose of these decisions is to offer transparency and guidance to free zone companies, allowing them to determine whether they qualify for tax exemptions or not. This clarity enables companies to effectively plan their finances and potentially reduce their tax liabilities.

Younis Haji Al Khoori, Undersecretary of the Ministry of Finance, stated that these decisions reflect the significant role of free zones in the UAE’s economic diversification strategies. Free zones play a crucial role in attracting foreign direct investment and creating a favorable business environment. With a competitive corporate tax regime and special benefits for free zones, the UAE further establishes itself as a global hub for business and investment.

Under the revised decision, the scope of “Qualifying Income” has been expanded to include qualifying intellectual property, calculated based on the OECD’s modified nexus approach. Additionally, the Ministerial Decision clarifies the intended scope of Qualifying Activities and Excluded Activities for free zone businesses.

The UAE’s corporate tax regime, effective from June 1, 2023, aligns with global trends towards a minimum corporate tax regime and makes the emirate a more attractive location for businesses. The tax rate for UAE businesses is nine percent on taxable profits, with profits up to Dh375,000 exempt from taxation to support small enterprises.

Qualifying activities for tax benefits include sectors like manufacturing, technology, research and development, and certain service industries. Excluded activities, on the other hand, do not qualify for tax benefits and may include banking, insurance, investment, and leasing activities. The decisions provide a specific list of excluded activities to help companies determine their eligibility.

These new decisions aim to enhance the role of free zones in the UAE’s economy and promote economic diversification. By providing clarity and transparency, the UAE government supports business growth and development in strategic sectors, reinforcing its position as a global business and investment destination.