The UAE corporate tax implication on Free Zone Persons is different from that of a juridical person or an individual. Here is all you need to know about Free Zone Persons, how they differ from the other categories of taxpayers, and how they can benefit from the corporate tax regime.

Who is a Qualifying Free Zone Person?

Qualifying Free Zone Person is a person that meets all of the following conditions:

1. A juridical person
2. Maintains adequate substance in the State.
   • Undertakes Core Income Generating Activities in free zone (supervised outsourcing in Free Zone permitted)
   • Adequate assets, qualifying employees and operating expenditure
3. Derives Qualifying Income
4. Has not elected to be subject to Corporate Tax [Article 19 of the CT Law]
5. Complies with the requirements of TP Compliances as per the article 34 (ALP) & 55 (Documentation) of the CT Law
6. Its non-qualifying revenue does not exceed the de minimums requirements [lower of 5 million or 5% of the total revenue]
7. It prepares audited financial statements.

If any of the above condition is not met in any particular year the free zone person will not be considered as a qualifying free zone person for that year and subsequent four years

What is Qualifying Income?

Qualifying Income of the qualifying free zone person shall include the below categories of income:

1. Transactions with other Free Zone Persons, except income from Excluded Activities.
2. Transactions that are Qualifying Activities (which are not excluded activities with a Non-Free Zone Person)
3. Any other income (on satisfaction of de minimis requirement)

What are excluded activities?

As per Ministerial Decision No. 139 of 2023, following activities shall be considered as excluded activities:

1. Any transactions with natural persons except transactions in relation to;
   • Ownership, management, and operational ships
   • Fund management services
   • Wealth and investment management services
   • Financing and leasing of aircraft, including engines and rotable components.
2. Banking activities
3. Insurance activities (except reinsurance services)
4. Finance and leasing activities except
   • Treasury and financing services to related parties.
   • Financing and leasing of aircraft, including engines and rotable components.
5. Ownership or exploitation of immobile property, except transaction in respect of commercial property located in FZ
6. Ownership or exploitation of immovable property except the transaction in respect of commercial property located in FZ
7. Ownership or exploitation of intellectual property assets
8. Ancillary activities to the above-mentioned activities

What are qualifying activities?

As per Ministerial Decision No.139 of 2023, following activities shall be considered as qualifying activities;

1. Manufacturing of goods or materials
2. Processing of goods or materials
3. Holding of shares and other securities
4. Ownership, management and operation of ships
5. Reinsurance services
6. Fund management services
7. Wealth and investment management
8. Headquarter services to related parties.
9. Treasury and financing services to related parties.
10. Financing and leasing of aircraft, including engines and rotable components.
11. Goods or materials imported through DZ and distributed to customers for the purpose of resale or processing and sale.
12. Logistic services
13. Ancillary services to the above-mentioned activities

Summary

For more information, please follow the below link

https://tax.gov.ae/en/taxes/corporate.tax/corporate.tax.topics/free.zone.persons.aspx