UAE: Excluded activities of the free zone businesses will attract 9% tax

There are six conditions for a free zone person to be classified as QFZP

By Compliance Corner/Mahar Afzal

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Published: Tue 4 Jul 2023, 3:15 PM

The UAE Corporate Tax law (UAE CT law) states that zero per cent corporate tax (CT) is applicable on the qualifying income (QI) of the qualifying free zone person (QFZP), and the non-qualifying income (NQI) of the QFZP is subject to tax at nine per cent.

In our previous article, we established that there are six conditions for a free zone person to be classified as QFZP. We concluded that among others, if the QFZP is making any transactions with other free zone persons then all its income from such transactions will be categorized as QI except income from excluded activities. This conclusion arises questions of excluded activities, and in this article, we have covered these activities in detail.


Article 3 of the Ministerial Decision No. 139 of 2023 (the Decision) carrying the complete detail of the excluded activities. The article 3(1)(a) describes that if the QFZP is carrying any transaction with the natural person, then any income from these transactions will not be considered as QI except the income from (i) ownership, management and operation of ships (ii) fund, wealth and investment management services that are subject to the regulatory oversight of the competent authority in the UAE, and (iii) financing and leasing of aircraft, including engines and rotable components services provided to natural persons. Means, income from transaction with the natural persons will be NQI except the income from the above, which will generate QI.

Banking and insurance services provided by the QFZP that are subject to the regulatory oversight of the competent authority in the UAE, are part of the excluded activities and any income generated from these transactions will be classified as NQI. However, if QFZP is providing reinsurance services, then any income from such services will be classified as QI. Means, the income of the free zone-based banks and insurance companies will be NQI, except the income from reinsurance services provided by the insurance companies. Moreover, this raised a question of banking and insurance services provided by the QFZP that are not subject to the regulatory oversight of the competent authority in the UAE, will be qualify as QI or NQI. We can interpret from the wording of the decision that it will be QI.


Finance and leasing activities that are subject to the regulatory oversight of the competent authority in the UAE, are excluded activities and any income from these services will be classified as NQI except treasury and financing services provided to related parties and financing and leasing of aircraft services, including engines and rotable components services which will generate QI.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants.
Mahar Afzal is a managing partner at Kress Cooper Management Consultants.

Any income generated from the ownership or exploitation of immovable property by the QFZP will be classified as NQI except the income from the free zone based immovable commercial property that is not being used for accommodation purposes and transaction is being made with other free zone person. It is evident that income from the hotels, serviced apartments, residential properties even made with the other free zone persons will be classified as NQI as these are being used for accommodation purposes. The transaction can be in the form of sale and lease of the property.

The income generated from ownership or exploitation of intellectual property assets, will be classified as excluded activities, and any income generated from these activities will be subject to tax at nine per cent. The intellectual property assets mean any right in intangible assets, such as copyrights, patents, trademarks, brands, and technical know-how, from which the taxable persons earn separately identifiable income.

If the QFZP is performing any ancillary activities to execute the main activities (dependent activities) as mentioned above, then any income generated from such activities will have the same treatment as the treatment of the main activity.

In a nutshell, all activities of the QFZP with other free zone persons will generate the QI which will be subject to tax at 0% except the income from excluded activities which will be subject to tax at nine percent. The QFZPs should know their customers, and nature of transactions with them to apply tax correctly.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above is not an official opinion of the Khaleej Times but a personal opinion of the writer. For any queries/clarifications, please write to the writer at mahar@kresscooper.com.



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