THE COMPANIES CAN ENJOY THE ZERO TAX REGIME

UAE introduced a new TAX, in UAE known as Corporation TAX which is under the Federal Decree Law No 47 of 2022. It is also called as CTL in short form. It came into effect on 1st June 2023. According to Article 3 of CTL, it is applicable on the QFZPs with the following rates;

• It will be 0% on Qualifying Income and it will be 9% on Non-Qualifying Income. These are also called as QI and Non-QI, respectively.
• Article 18 of Corporate Tax Law, highlights the conditions of a Free Zone Person, that must have to meet the criteria of classifying as a QFZP. Cabinet Decision 55 of 2023 which formed the concept of Ministerial Decision 139 for and EA & QA, eventually approved its implementation in June 2023.
• Let’s discuss the terminologies first before proceeding further. For example, Free Zone FZ, Designated Zone DZ, Qualifying Income QI, Qualified Activities QA, and Excluded Activities EA. QFZPs for Qualifying Free Zone Persons and EA is for Excluded Activities. QA is for Qualified Activities. THE COMPANIES CAN ENJOY THE ZERO TAX REGIME or Not? Let’s explore. 
  

To become the QFZP, first, you have to be FZP. FZP is defined as a Juridical Person Incorporated or registered in a Free Zone. Why Free Zone? Because a Free Zone is an area, that is designated by the Cabinet through its resolutions/decisions. There are a few conditions that need to be met here as follows;

• How Qualified Income is derived.
• NQR should not exceed the minimum requirement. The minimum requirement is 5% of total revenues or 5 million AED, or whatever is lower.
• The Financial Statement Audit is maintained.
• The provided criteria must be met for qualifying as QFZP, for an FZP.

For assessing whether the income, income earned by an FZP is QI or not, the following important questions need to be answered:

• FZP Dealing. It means the FZP.
• Activities carried out by FZP.
  But when you are dealing with NON-FZP, then just QA income not declared in EA can be QI.
• Cabinet Decision 55, monitors the income which is earned through, FZP, and related to immovable properties. As per this Cabinet Decision 55, Article 6, the immovable property in Free Zone, is taxable with a percentage of 9%. But the commercial properties, from the FZP transactions, will be exempted or will be an exception. The income from the properties outside the FZ, will not be a QI income.

The Ministerial Decision 139 of 2023 introduced this concept. The total revenues taken from the immovable properties in the Free Zone, which are taxable at 9%, will not be included in the 5% of De Minims ratio.

Usually, once the law has been implemented, then the practical impacts are seen later. It will be seen and observed by the end of the year or fiscal calendar.

It involves an assessment to become qualified for QFZP, which contains the complete subjects required for and in a transaction. It is also being said by the business sector that the relief is not sufficient enough, while from the government sector, this is the best proposed from the Government side. Ministry of Finance and the Federal Tax Authority’s website can be visited for a better understanding and quick information.

Provided Information is still being discussed by the experts in UAE, for understanding its benefits and losses. Therefore, readers must visit the Ministry of Finance and the Federal Tax Authority for the latest information and before taking a practical move. Theories and blogs can be outdated, old, need to be corrected, need to be modified etc. Therefore, therefore our blog or content will not take responsibility for forming an opinion or forming a mind, and rather, advise to consult the Lawyers at Good Law Firms like Al Shaiba Advocates and Legal Consultants or consult the concerned government department.