List of Qualified Activities Under Qualified Income Person for 0% Corporate Tax
In the UAE, the Corporate Tax law’s rules and compliance factors vary for different entities. Each entity or person under the Corporate Tax Law has unique functions and adherence requirements.
The 0% Corporate Tax rate applies to Free Zone persons who derive income from transactions with other Free Zone or Non-Free Zone persons, provided the income is not from the ‘excluded activities’ listed by the UAE Governing Authority.
Individuals paying 0% corporate tax are considered qualifying income persons (QIPs). To be eligible for this exemption, they must meet specific requirements outlined by the UAE Corporate Tax regulations.
Understanding and adhering to these qualifications ensures compliance and maximizes tax benefits under the UAE Corporate Tax Law.
Qualifying Income in the UAE’s Free Zones
The UAE boasts approximately 44 Free Zones, accommodating both individuals and entities engaged in business either solely within the Free Zones or extending their operations outside the country. These Free Zones present a significant opportunity for those seeking to earn a substantial income through transactions and business activities, without the burden of high taxes that is common in many other countries.
Free Zone Qualifying Income for Persons (QIPs)
Qualifying income for Free Zone Qualifying Income Persons (QIPs) in the UAE refers to income generated from activities designated by the government as “qualifying for 0% tax.” These activities encompass manufacturing, trading, holding securities, headquartering, and others specified in government documents. QIPs benefit from a 0% corporate tax rate on their qualifying income. However, income from ‘excluded activities’ such as banking, insurance, finance, and leasing is not considered qualifying income.
Additionally, QIPs must adhere to “de minimis” requirements, meaning income from non-qualifying activities must not exceed a certain percentage of their total income. Qualifying income includes revenue from transactions with other Free Zone persons, provided it does not stem from excluded activities. It also encompasses income from transactions with Non-Free Zone persons (domestic or foreign) if these transactions involve ‘qualifying activities.’ Any other special cases meeting the de minimis criteria also qualify.
The De Minimis Requirement for Free Zone Companies
The de minimis rule allows Free Zone companies in the UAE to earn a small amount of non-tax-free income without forfeiting their tax benefits. Think of it as a “wiggle room” that lets you enjoy a bit of non-tax-free income, much like sprinkles on your tax-free sundae, as long as it adheres to two specific limits:
1. Limit 1: Non-tax-free income cannot exceed AED 5 million.
2. Limit 2: Non-tax-free income cannot surpass 5% of your total income.
By staying within these limits, Free Zone companies can ensure that any income not fitting other tax-free categories will still be considered tax-free.
Qualifying Activities Under the Umbrella of Qualifying Income
Beyond the De Minimis requirement, certain “qualifying activities” outlined in official government documents can further entitle you to the 0% corporate tax scheme. These activities include transactions with Non-Free Zone Persons, provided they meet specific criteria, such as:
– Manufacturing and Processing: Creating products, from cars to children’s toys, qualifies.
– Owning or Managing Assets: Managing assets like ships, stocks, and airplanes falls under qualifying income.
– Providing Specialized Services: Activities such as reinsurance, fund management, and headquarters support for your own companies are included.
– Logistics and Distribution: Moving goods and handling logistics and distribution are also qualifying activities.
Engaging in these activities ensures eligibility for the 0% corporate tax rate.
Providing Services in UAE Free Zones: Qualifying Activities for 0% Corporate Tax
– Reinsurance Services: Spread the risk and secure your financial future with tax-free reinsurance services.
– Fund and Wealth Management: Help others
grow their wealth while enjoying tax-free financial success through fund and wealth management services.
– Headquarter Services: Manage your global operations from the UAE, providing headquarter services for related parties without tax hassles.
– Treasury and Financing Services: Lend a hand and collect interest without the tax burden by offering treasury and financing services to related parties.
– Aircraft Financing and Leasing: Soar high with tax-free deals by financing and leasing aircraft, engines, and components.
Additionally, any ancillary activities supporting the above services will also qualify for the 0% corporate tax rate.
Now that you’re familiar with the various parameters for the 0% Corporate Tax ruling, you might feel confident enough to engage in some of these activities. The UAE offers a promising business environment, but navigating it requires awareness of compliance factors. Staying updated on the latest economic legalities in the UAE and any other countries you interact with is crucial.
Once you have these under control, you’re ready to operate safely in the tax-free zones.
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