Excluded Activities in Free Zone Corporate Tax UAE
Main Ideas About Excluded Activities in FZ
A Free Zone in the UAE gives a business a big chance for tax-free income if it follows rules. Mubarak Al Ketbi (MAK) Auditing helps companies follow every rule for tax benefits. Not all activities get a tax-free pass, though. Some jobs, called excluded activities, bring regular corporate tax. Every business in the Free Zone must know these rules before doing business.
When a company is a Qualifying Income Person (QIP), it must work on special jobs like:
- Trading goods with other companies
- Using logistics and warehousing for products
- Making and assembling things from raw materials
- Offering consultancy and professional services
A company can’t just do any job and still pay zero tax. It must not get income from jobs on the excluded activities list. If a business forgets or ignores these rules, it will get a tax bill that nobody wants.
What Are Excluded Activities for FZ Businesses?
Every business should learn about excluded activities before making a tax plan. These activities do not qualify for the Free Zone’s 0% tax rate. Companies that earn money from these activities must pay regular corporate tax.
Main Categories of Excluded Activities
Let’s look at the jobs that don’t get tax-free benefits in the Free Zone. The UAE has made clear categories:
- Financial Activities:
- Banking services (regulated by UAE Central Bank)
- Insurance services under UAE law
- Finance and leasing, under UAE rules
- Real Estate Activities:
- Owning or using immovable property inside the UAE (except some business properties inside the Free Zone)
- Intellectual Property:
- Owning or using IP assets (like patents, trademarks, copyrights)
- Making money from selling or licensing IP assets
- Transactions With Natural Persons:
- Dealing with people (not companies) from the UAE, except special business cases
- Ancillary Activities:
- Activities that support excluded activities (even small jobs connected to banking, IP, or real estate)
If a company gets money from these jobs, it can’t skip the corporate tax.
Understanding Excluded Income in the Free Zone
Income from excluded activities will never get the Free Zone tax benefit. This is true even if the company works with other Free Zone companies or businesses outside the UAE.
Some main rules about excluded activity income:
- Most deals with people (not companies) don’t get the tax-free benefit, except some jobs in the law.
- Any money from banking or insurance (except a few legal cases) is taxable.
- Money from finance and leasing activities is usually taxable, except if the law lists an exception.
- Income from owning or renting property (except some Free Zone office deals) will be taxed.
- Making money from using IP (like selling or licensing patents) is taxable.
- Even support jobs (like running payroll for an insurance team) will be taxable if they help an excluded activity.
So, a business in the Free Zone must look at all its jobs and see if any income comes from excluded activities.
Dealing with Special Cases and Details
Some tax rules have exceptions and details. If a company does jobs for its own staff (like salaries, housing, or special professional help), the tax rule may change. For example, giving employees a salary or a house is usually not counted as an excluded activity.
If a business uses IP assets just for its own work, it may stay tax-free. But if it makes money by selling or licensing that IP to others, it becomes excluded income.
When a company provides support jobs (like cleaning or catering) only for itself, it’s usually not an excluded activity. But if those services help another business, the rule can change. Always check with a professional.
Steps to Keep Your FZ Business Tax Compliant
A business must do some key things to stay safe from tax mistakes. Here are easy steps from Mubarak Al Ketbi (MAK) Auditing:
- Get clear, expert advice before starting or changing business activities.
- Keep all business records neat, with every job and its income listed clearly.
- Separate income from qualifying jobs and excluded jobs.
- Stay updated about Free Zone law changes, so your business always follows the rules.
- Use professional tax planning to avoid sudden tax bills.
If you’re not sure, it’s smart to talk with Mubarak Al Ketbi (MAK) Auditing before making business decisions.
How Mubarak Al Ketbi (MAK) Auditing Can Guide You
Running a Free Zone business can feel like walking a tightrope, but you don’t have to go it alone. Mubarak Al Ketbi (MAK) Auditing helps you:
- Spot excluded activities before you earn taxable income.
- Organize your business records to prove tax compliance.
- Review each business step for Free Zone law.
- Update your strategy when the law changes.
- Avoid tax surprises by planning ahead with experts.
Remember, “Don’t put all your eggs in one basket,” so let Mubarak Al Ketbi (MAK) Auditing spread the risk and boost your tax savings!
- For more information visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact/WhatsApp on this number: +971 50 276 2132
