Demystifying Qualifying Income
The UAE’s implementation of corporate tax has brought a wave of new considerations for businesses operating in free zones. One of the key concepts for these businesses is Qualifying Income. This income enjoys a significant benefit – a 0% corporate tax rate! But what exactly is Qualifying Income, and how can your free zone business ensure it falls under this category?
Understanding the Basics
The UAE corporate tax system differentiates between two types of income for free zone businesses:
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Qualifying Income: This income is generated from activities specifically defined as "Qualifying Activities" by the Ministry of Finance through Ministerial Decision No. 139 of 2023. Qualifying income is exempt from the standard 9% corporate tax rate.
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Non-Qualifying Income: Any income earned outside the list of Qualifying Activities is considered Non-Qualifying Income and is subject to the standard 9% corporate tax rate
What are Qualifying Activities?
The Ministerial Decision outlines a variety of Qualifying Activities, including:
- Manufacturing of goods or materials
- Processing of goods or materials
- Holding of shares and other securities
- Owning, managing, and operating ships
- Specific financial and auxiliary services with regulatory oversight
- Headquarter and certain related party services
- Logistics and distribution activities meeting specific criteria
- Ancillary activities that support the above-mentioned Qualifying Activities
However please be noted that, the list of Qualifying Activities is not exhaustive. It’s crucial to review the Ministerial Decision for a complete picture. Similarly, not all income generated from a Qualifying Activity is automatically considered Qualifying Income. The specific nature of the activity and its adherence to regulations play a role.
Understanding Qualifying Income is essential for free zone businesses to navigate the UAE corporate tax landscape effectively. By familiarizing yourself with the qualifying activities and seeking professional guidance, you can ensure your business maximizes its tax benefits and thrives in the new tax environment.
Have questions about how Corporate Tax provisions apply to your business? Reach out to our team for expert advice.
Team TFAB