The difference Between Qualifying and Excluded Activities under UAE Corporate Tax law

The UAE introduced the corporate tax law in June 2023, significantly impacting the tax and economic landscape for businesses. Many entities are still assessing the implications of the new regime. To provide clarity, the FTA has been publishing guides to help businesses and the public understand the new tax regulations. Recently, the FTA issued further clarification on qualifying income, qualifying activities, and excluded activities, along with an explanation of the de minimis requirements. This blog highlights the key differences between excluded and qualifying activities under the UAE CT law.

Qualifying Activities Under the UAE corporate tax law

Ministerial Decision No. 139 of 2023 outlines the qualifying activities for a qualifying free zone person under the UAE CT law. These activities include:

– Manufacturing of goods or materials
– Processing of goods or materials
– Holding of shares or other securities
– Ownership, management, and operation of ships
– Reinsurance services regulated by the relevant authority in the UAE
– Fund management services regulated by the relevant authority in the UAE
– Wealth and investment management services regulated by the relevant authority in the UAE
– Headquarters services for related parties
– Treasury or financing services for related parties
– Financing and leasing of aircraft, including engines and rotable components
– Distribution of goods or materials in or from the designated zone to customers who resell, process, or alter them for sale or resale
– Logistics services
– Ancillary activities necessary for performing the main qualifying activities

Ancillary activities are those that serve no independent function and are essential for the main qualifying activity.

Excluded Activities Under the UAE CT Law

business setup in dubai guidence

Excluded activities under the UAE CT law refer to activities from which income is not considered qualifying income. According to the ministerial decision, these excluded activities include:

– Transactions with a natural person, except those related to qualifying activities
– Banking, insurance, finance, or leasing activities subject to relevant oversight by the competent authority in the UAE, with certain exceptions
– Ownership or exploitation of immovable property, excluding commercial property situated in a free zone, where such transactions involve other free zone persons
– Ownership or exploitation of various intellectual property assets
– Ancillary activities related to the above-listed activities

Income from these activities does not qualify for tax exemptions under the UAE CT law.

Understanding the De Minimis Requirements

The de minimis requirement is met when any non-qualifying income earned by a qualifying free zone person during a tax period does not exceed the following thresholds:

– 5% of the total revenue of the qualifying person, or
– AED 5,000,000

The FTA’s ministerial decision provides clear distinctions between qualifying and excluded activities. This clarification is crucial for qualifying persons to differentiate between these activities accurately. For businesses needing further assistance, consulting tax specialists like Unicorn Global Solutions is recommended for clearer insights and compliance guidance.

Unicorn Global Solutions: Your Corporate Tax Specialist

Unicorn Global Solutions stands as a leading accounting and tax consulting firm in the UAE. Our expert team is well-versed in the new corporate tax regime offering optimal corporate tax services, making us the ideal consultants to help you navigate its complexities. We evaluate the regime’s application to your business and establish the best compliance framework to avoid penalties. Text us on WhatsApp or call us today at Global Solutions to learn more about our services and how we can assist you.

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