The UAE introduced a new corporate tax regime in 2023 with a competitive 9% standard rate, aligning with global tax norms. Despite this, free zone companies can still enjoy a 0% tax rate—provided they meet the “de minimis requirement.”
At Unicorn Global Solutions, we assist businesses in navigating these changes. Missing the de minimis threshold can result in losing your Qualifying Free Zone Person (QFZP) status and being taxed at 9% for five years. This article explains the de minimis rule, its implications, and how to retain your tax-free advantage.
Understanding the De Minimis Requirement
Article 18 of the UAE Corporate Tax Law defines a QFZP as a free zone company that qualifies for the 0% tax rate. To maintain this status, non-qualifying income must remain below the lower of:
- AED 5 million, or
- 5% of total revenue in a tax period.
Exceeding this threshold—even by AED 1—triggers a 9% tax on your entire income for that year and four subsequent years.
What Is Non-Qualifying Revenue?
Non-qualifying revenue, as outlined in Cabinet Decision No. 100 of 2023, includes:
- Income from excluded activities.
- Income from non-qualifying activities with non-free zone persons.
- Transactions with free zone entities that aren’t the “beneficial recipients” of goods/services
Certain revenue sources are excluded from de minimis calculations but are still taxed at 9%:
- Revenue from domestic operations outside the free zone.
- Revenue from international operations.
- Income from immovable property within the free zone (excluding free zone-to-free zone transactions).
- Intellectual property income (e.g., royalties).
Example: Calculating the De Minimis Threshold
Imagine your company earns AED 10 million in a year, with AED 2 million from mainland UAE operations (taxed at 9%). Excluding mainland revenue, your de minimis threshold applies to the remaining AED 8 million. The non-qualifying income must not exceed AED 400,000 (5% of AED 8 million) or AED 5 million, whichever is lower. Exceeding this threshold means losing the 0% rate.
Consequences of Failing the De Minimis Test
Failing the de minimis test results in:
- Immediate loss of QFZP status.
- A 9% corporate tax on all income starting that tax year.
- Ineligibility to regain QFZP status for four tax periods.
How Unicorn Global Solutions Can Assist
At Unicorn Global Solutions, we provide tailored solutions to help your business maintain QFZP status:
- Tax planning and compliance audits.
- Revenue stream monitoring.
- Strategic restructuring to meet de minimis thresholds.
Final Thoughts
The UAE remains a global business hub with unparalleled opportunities. While the 9% corporate tax introduces new challenges, the 0% rate for QFZPs is achievable with careful planning. Don’t leave your tax compliance to chance—reach out to Unicorn Global Solutions for expert guidance.
Contact us today to safeguard your tax advantage and maintain your competitive edge. For more details Text us on whatsApp or call us today .
Frequently Asked Questions (FAQs)
The de minimis requirement ensures that a free zone company's non-qualifying income remains below either AED 5 million or 5% of the company's total revenue, whichever is lower, during a tax period. Exceeding this threshold results in the loss of Qualifying Free Zone Person (QFZP) status and triggers a 9% corporate tax.
Non-qualifying income includes:
- Revenue from excluded activities.
- Transactions with non- free zone persons involving non-qualifying activities.
- Transactions where the free zone entity is not the "beneficial recipient."
However, some revenue (e.g., domestic operations outside the free zone) is excluded from the de minimis calculation but still taxed at 9%.
Failing the de minimis test results in:
- Immediate loss of QFZP status.
- A 9% corporate tax on the company's entire taxable income starting that tax year.
- Ineligibility to regain QFZP status for four consecutive tax periods.
To maintain QFZP status, companies should:
- Monitor revenue streams regularly.
- Segregate non-qualifying income and ensure it stays below the de minimis threshold.
- Conduct periodic tax compliance reviews.
- Seek expert advice for tax planning and restructuring when needed.
Unicorn Global Solutions provides:
- Strategic tax planning to retain QFZP benefits.
- Comprehensive audits of revenue streams.
- Tailored restructuring strategies for businesses exceeding de minimis limits.
- Expert advice to ensure compliance with UAE tax laws.
