De Minimis Requirements

The De Minimis Requirement in UAE, Corporate Tax for Free Zones allows Qualifying Free Zone Persons (QFZPs) to pay 0% tax if their non qualifying income is less than 5% of total revenue or AED 5 million, whichever is lower. A freezone person who requires to become a qualifying freezone person must meet the De minimis requirements defined by the FTA, which allow the person to earn a small amount of non-qualifying income that has no effect on the person's qualifying free zone person status or freezone CT regime.

UAE Corporate Tax in Free Zones

The UAE is a global financial centre and a major economic hub in the Middle East, providing multiple benefits to businesses and foreign investors. One of the most significant incentives was the 'zero' tax on earnings earned within the country, with only a few exceptions. In December 2022, the UAE government announced the implementation of a Federal Corporate Tax (CT law), which went into effect on June 1, 2023.

According to the new UAE Corporate Tax structure, businesses that do not meet the qualifications for Qualifying Free Zone Persons (QFZPs) would pay a 9% tax rate on yearly taxable revenue of more than AED 375,000. Businesses who are QFZPs having qualifying income will receive a 0% tax rate on eligible income. To be qualified for this benefit, individuals must meet the conditions imposed by the tax authorities. Any non-qualifying income for QFZPs is taxed at 9%.

De Minimis Requirements UAE

The De Minimis Requirements  UAE  are met when the Qualifying Free Zone Person's non-qualifying Revenue in a Tax Period does not exceed 5% (five percent) of their total Revenue in that Tax Period, or (five million dirhams), whichever is less.

•  5% total Revenue
• AED 5,000,000  whichever is less.
  
  

Non-Qualifying Revenue

Non-qualifying revenue is revenue obtained during a Tax Period from any of the following:

• Excluded Activities
• Activities other than "qualifying activities" in which the opposite party to the transaction is a non-free zone individual.
  
• Transaction involving a Free Zone Person who is not the benefit recipient of the relevant Services or Goods.

Additional Requirements for Free Zone Persons

According to Ministerial Decision No. 265 of 2023, Free Zones must comply with two additional conditions:

• Non-qualifying revenues do not go beyond the De Minimis Requirements. 
• Prepares audited financial statements in compliance with the law. 
  

Failure to achieve any of the following requirements will result in the taxpayer's loss of Qualifying Free Zone Person status beginning with the relevant Tax Period and continuing for the next four Tax Periods.

De Minimis Calculation

•  De-Minimis % = NQI/TI*100%
  
• NQI = Income from [(i) Excluding Activities + (ii) Non qualifying activities, where non transactions are with non free zone person
  
• TI = all revenue except revenue from (i) PE (domestic + foreign) and (ii) immoveable property, unless income from immovable property is qualifying income.

Revenue attributed to immovable property located in the Free Zone is derived from:

• Transaction with Non-Free Persons about Commercial Property
• Transaction with any person in relation to immovable property that is not commercial property.
  

Not to consider for Non-qualifying Revenue and Total Revenue:

• Revenue attributed to the Qualifying Free Zone Person's domestic or foreign permanent establishment.
• Revenue derived from the ownership or exploitation of intellectual property, except for the Qualifying Income computed in accordance with the Minister’s decision.

Conclusion

Due to our considerable experience and specialised solutions, Reyson Badger is the best partner for handling De Minimis requirements in UAE. Our thorough awareness of local rules, along with a client-centric approach, guarantees that we deliver accurate and efficient services. By working with Reyson Badger, you benefit from our dedication to quality and proven track record of assisting businesses in meeting regulatory requirements, allowing you to focus on growth and success.