UAE Corporation Tax: Qualifying Income

Thursday 1 June was not only the go-live date for UAE CT, but also witnessed the release of two eagerly awaited Cabinet Decisions in relation to Qualifying Income.

Cabinet Decision No. 55 of 2023 on Determining Qualifying Income and Ministerial Decision No. 139 of 2023 Regarding Qualifying Activities and Excluded Activities provide some clarity on the nature of a Free Zone Person's income that will be taxed at 0%, as well as the income that would disqualify the Free Zone Person (completely) from claiming the 0% tax rate.

Overall, these decisions seem to deviate from the initial consultation document released in April 2022 and what was anticipated, particularly around income sourced from foreign markets. Moreover, with ‘excluded activities’ targeting income from Natural Persons (save for a couple of specific exemptions) and income from banking, insurance, finance, and leasing activities all classes as 'excluded services’, much of the financial sector (including professional service/consultancy firms) will likely be subject to 9% CT.

It remains to be seen why there has been such a pivot in the FTA’s tax policy – one thought is that perhaps they did not want Free Zones to have an unfair advantage over their mainland competition – hopefully the reasoning will be clarified in a forthcoming announcement.

Our experienced team of tax specialists can advise on the legislation’s impact on new and established businesses, and on how to prepare for and comply with its requirements. We also offer ongoing tax administration and compliance services.

Contact us today to discuss how we can help you.

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