Qualified Activities for 0% Corporate Tax UAE
Understanding Zero Percent Corporate Tax in UAE
The UAE government gives many businesses in Free Zones a 0% corporate tax rate. The law for corporate tax is different for each company or person. Each Free Zone person or company needs to follow these rules and stay in line with the law. Mubarak Al Ketbi (MAK) Auditing helps clients understand these rules in Dubai.
The 0% corporate tax rule applies to people and companies in Free Zones who earn qualifying income. They can deal with other Free Zone people or companies, or even with Non-Free Zone businesses, as long as they don’t earn money from excluded activities. You should know which activities are included or excluded in the law.
What Is a Qualifying Income Person (QIP)?
A qualifying income person (QIP) is someone who meets the UAE government’s standards for the 0% corporate tax. If you want to pay 0% corporate tax, you must have qualifying income and fit the rules. If your company fits, you don’t need to pay the UAE corporate tax for that income.
QIPs must:
- Do only activities approved by the government.
- Not earn income from excluded activities.
- Stay within limits for non-qualifying income (the “de minimis” rule).
- Keep records to prove they’re following the rules.
Qualifying Income in UAE Free Zones
There are about 44 Free Zones in the UAE. Each Free Zone has its own companies and people. Some work inside the Free Zone only, but some do business with others outside the UAE, too. In most countries, business people pay a lot of taxes. In the UAE Free Zones, QIPs get to keep more of their money because of the 0% tax.
Qualifying income means:
- Income from activities listed as “qualifying” by the UAE government.
- Examples are: manufacturing, trading, owning securities, and managing headquarters.
- Excluded activities like banking, insurance, or finance do not count.
- Income from other Free Zone companies counts, unless it’s from an excluded activity.
- Sometimes, income from Non-Free Zone companies also counts, if it fits the qualifying activities.
- All QIPs need to follow the “de minimis” rule about non-qualifying income.
Understanding the De Minimis Requirement
The “de minimis” rule lets a Free Zone company make a small amount of non-qualifying income but still keep the 0% tax. Think of it as wiggle room when handling money.
- The non-qualifying income must be less than AED 5 million.
- Or, the non-qualifying income must be less than 5% of the total income.
- If the company stays under both limits, it keeps its tax-free status.
Main Qualifying Activities for 0% Tax
The UAE government has a list of activities that count as qualifying income for 0% corporate tax. These are the main activities you should know about:
- Manufacturing: Making things like cars, electronics, or other products.
- Trading: Buying and selling goods within or outside the Free Zone.
- Owning Assets: Owning or managing things like ships, planes, or stocks.
- Specialized Services: Providing things like reinsurance, fund management, or headquarters support.
- Logistics: Moving products around, distributing goods, and handling shipping.
Other important activities include:
- Reinsurance: Sharing risk with others by offering reinsurance services.
- Fund Management: Helping people or companies manage their money or investments.
- Headquarter Services: Managing business operations for your related parties from the UAE.
- Treasury and Financing: Giving loans or managing money for related parties.
- Aircraft Leasing: Financing or leasing planes, engines, and other parts.
Even small activities that help these main services, called ancillary activities, will also count as qualifying activities.
How To Stay Compliant with UAE Corporate Tax
Running a business in the UAE is great for saving on taxes. But you still have to follow all the legal rules to keep your 0% corporate tax benefits.
- Check which of your activities are qualifying and which are not.
- Keep clear records of all your transactions.
- Make sure you do not earn too much from non-qualifying income.
- Follow the de minimis rule every year.
- Stay up to date with UAE economic and tax laws.
If you don’t follow the rules, you may lose your 0% tax benefits.
How Mubarak Al Ketbi (MAK) Auditing Can Help Your Business
Running a business in the UAE can feel like walking a tightrope sometimes, but with Mubarak Al Ketbi (MAK) Auditing, you’re not alone. We’ll help you:
- Check if your company qualifies for 0% corporate tax.
- Keep all records and transactions in order.
- Make sure you don’t go over the de minimis limit.
- Follow all UAE tax laws, so you don’t drop the ball.
- Spot new ways to save on taxes and boost your profits.
When push comes to shove, it’s better to let the pros take care of the heavy lifting. After all, “two heads are better than one” when it comes to tackling tricky tax problems!
For more information:
- Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact/WhatsApp: +971 50 276 2132
