The Ministry of Finance of the UAE has issued two new ministerial resolutions that specify the tax regime for legal entities operating in the UAE’s free economic zones. These resolutions are Resolution No. 55 of 2023 “On the determination of relevant income” and Resolution No. 139 of 2023 “On relevant activities and excluded types of activities.”

Who can benefit from the tax regime for Free Zones?

The corporate tax regime for free economic zones is available to companies registered within the free economic zone. Such a corporate tax regime is applicable only within the designated boundaries of the free economic zones. The profit tax regime for Free Zone enterprises is applicable only to income derived from activities carried out within or from the free economic zone.

What income is considered “qualifying” for the application of the tax regime in Free Zones (at a 0% tax rate)?

The resolution provides a definition of the term “qualifying income,” to which the special tax regime for companies in Free Zones (tax rate of 0%) will apply.

qualifying income includes:

• Income derived from transactions with other entities within the free economic zone.

• Income derived from domestic and international activities related to any of the “qualifying activities.”

What are “qualifying activities”?

“Qualifying activities” include:

• Production of goods or materials.

• Processing of goods or materials.

• Ownership of shares and other securities.

• Ownership, management, and operation of vessels.

• Reinsurance services.

• Fund management services subject to regulation by a competent authority in the UAE.

• Capital and investment management services subject to regulation by a competent authority in the UAE.

• Headquarter services for related parties.

• Financing services for related parties.

• Financing and leasing of aircraft, including engines and spare parts.

• Logistics services.

• Distribution from a designated zone that meets the required conditions.

• Any ancillary activities related to the aforementioned activities.

Excluded Activities

Income derived from engaging in “excluded activities” will not be considered as “qualifying income,” regardless of whether it is obtained by a person registered in a Free Zone or even if it is obtained as a result of “qualifying activities.”

Excluded activities include:

• Income from transactions with individuals.

• Income derived from certain regulated financial services.

• Income derived from intangible assets.

• Income derived from real estate, excluding transactions with entities in the Free Zone concerning commercial real estate located within the free economic zone.

A person registered in a Free Zone but receiving income from “excluded activities” or income that is not “qualifying” will not be able to benefit from the special tax regime for Free Zones, even if such person meets the minimum income threshold requirements (de minimis).

What should be the “minimum income” of a company to qualify for the Free Zone tax regime?

To meet the requirements, the income earned by a resident entity in a Free Zone must not exceed the lesser of two amounts: either 5% of the total income or AED 5,000,000.

Income related to the internal or overseas permanent establishment of a Free Zone company and income derived from real estate located within the free economic zone, which is not subject to the Free Zone tax regime, are not considered when determining the minimum income. Instead, the associated taxable income will be subject to the regular corporate tax regime of the UAE, at a rate of 9%.

If the minimum income requirements are not met or if a Free Zone resident entity fails to meet other conditions for the application of the special tax regime, such entity will not be able to benefit from the special tax regime in the Free Zone for a period of five (5) years. During this period, the entity registered in the Free Zone will be considered a regular taxpayer, subject to a tax rate of 9% on all income exceeding AED 375,000.

On June 5th, the Ministry of Finance of the UAE announced Cabinet Decision No. 56 of 2023 “On the Taxation of Non-Residents in the UAE” regarding the corporate tax law.

According to the decision, foreign non-resident companies will be subject to corporate tax on income derived from real estate and other immovable property located in the UAE. Additionally, such companies will be required to register in the UAE as corporate tax payers. These requirements apply to both commercial and investment properties.

Non-resident legal entities that own property in the UAE will be subject to corporate tax based on “net income,” which is calculated after deducting relevant expenses.

Income from real estate investments derived from immovable property in the UAE, owned directly or through a trust, fund, or other structure that is considered fiscally transparent for the purposes of UAE corporate tax, is generally not subject to corporate tax. However, this applies only if it is not a licensed entrepreneurial activity.

Furthermore, real estate investment trusts and other qualified investment funds may qualify for an exemption from corporate tax on income derived from investments in real estate in the UAE, subject to compliance with relevant conditions.

The financial regulators of the UAE have taken official permission to support cryptocurrency trading in the free economic zones of the Dubai World Trade Center, Dubai Multi Commodities Center.

This permission allows Free Zones to issue the necessary licenses for cryptocurrency-related financial activities, such as issuance, listing, trading, and licensing processes.

Subsequently, a public bitcoin fund (BTC) was listed on the local Nasdaq Dubai stock exchange by Canadian digital asset fund manager 3iQ.

For questions about obtaining licenses and introducing activities with cryptocurrency, you can contact Parus Management Consultancies, Dubai, UAE.

On September 11, as part of the UAE 50 Projects program, new types of Green Visa and Freelancer Visa were accepted.

Obtaining a Green Visa makes it possible to officially work without concluding an employment contract with an employer, obtain residency in the UAE and be a visa sponsor for your family

Green Visa can be obtained by real estate investors, entrepreneurs, highly qualified doctors, teachers, athletes, the best students and graduates of world famous universities, as well as heads of small and medium-sized enterprises, scientists and others.

Freelance Visa is available to self-employed workers from the UAE and abroad, specializing in areas such as artificial intelligence, blockchain and digital currencies.

Dubai has simplified the rules for obtaining a three-year investor visa when buying property.

According to the Dubai Land Department, it is now enough to invest 750,000 dirhams in ready-made real estate to obtain residency, and not a million, as it was before.

In this case, the investor gets the right to apply for a residence permit in the UAE with the possibility of extension and sponsoring his family.

To apply for a three-year UAE resident visa, the investor must provide a passport and an electronic copy of the certificate of ownership. The cost of obtaining an investor visa at the Land Department is about 12,000 thousand dirhams.

On September 14, 2021, a unique event was held in Dubai – “Business Day for Professionals”, organized by PARUS Management Consultancies.

Business Day for Professionals – Business Tour for lawyers, consultants and professional intermediaries.

The United Arab Emirates relatively recently became an independent state. During this time, the state has become one of the main players in the oil market, an important tourist and business center, where the values of the West and the traditions of the East coexist peacefully. Thanks to this, the country has become interesting for investments from all over the world, but even now not all foreigners can decide to organize a business in such an attractive, but for many still exotic and mysterious eastern country.

Our event was organized for a detailed acquaintance with the UAE as a jurisdiction for doing business, in order to show how everything works from the inside, to reveal and answer all the exciting questions, in the absence of which there were difficulties in working with this jurisdiction.

We thank all those present for their active participation, your attention, positive attitude and good company! It’s a pleasure to work with you!
We hope that your participation was the most useful and enjoyable for you!

We express special gratitude for the support to our partners Bosco Conference
Thanks for the cooperation proven over the years!

See you next time!
PARUS Management Consultancies