Corporate Tax the recent UAE corporate tax decisions are introduced to offer free zone companies greater clarity regarding their eligibility for tax benefits.
Ministry of Finance’s Announcement
The UAE Ministry of Finance has recently announced two significant decisions, Cabinet Decision No. 100 of 2023 on “determining qualifying income” and Ministerial Decision No. 265 of 2023 on “qualifying activities and excluded activities.”
Clarification for Free Zone Enterprises
These decisions aim to provide free zone companies with increased transparency, helping them understand their tax status and enabling more efficient financial planning, which may lead to potential reductions in their tax liabilities.
Key Insights from Younis Haji Al Khoori
Younis Haji Al Khoori, the Undersecretary of the Ministry of Finance, emphasized the critical role of free zones in the UAE’s economic diversification strategies and the country’s commitment to international taxation standards.
Importance of Free Zones
Free zones play a pivotal role in the UAE’s economic growth, attracting foreign direct investment and fostering a business-friendly environment.
Expanded Scope of Qualifying Income
The revised decision extends the scope of “Qualifying Income” to include income derived from “qualifying intellectual property,” calculated according to the OECD’s modified nexus approach.
Clarification of Qualifying and Excluded Activities
The Ministerial Decision provides clarity on “Qualifying Activities and Excluded Activities,” offering specific guidance to free zone businesses.
Implementation of Corporate Tax Regime
The UAE’s corporate tax regime, effective from June 1, 2023, aligns with global trends and aims to position the UAE as an attractive destination for businesses.
The tax rate for UAE businesses is set at nine percent, calculated based on taxable profits rather than gross revenue, with exemptions for small enterprises.
Qualifying and Excluded Activities
Qualifying activities make companies eligible for tax benefits, while excluded activities do not qualify for such benefits. Specific lists help determine tax status for companies.
Advancing Business-Friendly Tax Environment
These decisions enhance transparency in the UAE’s tax system, bolstering the country’s reputation as an international business hub.