The highly anticipated decisions, that determine so-called qualifying activities and revenue derived by the free zone companies, have been recently published. Apart from the above, the new decisions introduce the concept of de minimis requirements, where non-qualifying revenue should not exceed 5% of total revenue or AED 5 million threshold, whichever is lower. The decisions also outline that income attributable to a place of free zone company’s business on the mainland (domestic establishment) should be calculated as if such establishment was a separate and independent person and shall be subject to tax at 9% rate. It is worth mentioning that the fact of having such business on the mainland (i) will not disqualify the free zone company from benefiting from a 0% tax rate on qualifying income and (ii) will not be considered within the de minimis test.
These newly released decisions significantly impact the understanding of the free zone corporate tax regime. Therefore, it is essential for free zone residents to assess their business for a better understanding of applicable tax implications and ensure compliance with the new rules accordingly.
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