UAE clarification of Freezone Qualifying Income

[yoyodubai]

Yeah, I get it.

But the ambiguity makes⁠ it difficult to plan ahead.

It seems being treated like a mainland company and receiving⁤ small business relief might be the most interesting path (at least for me) especially since⁣ I don't plan on being in the UAE long-term so the future consequences of making⁢ the shift aren't important.

Planning on receiving more guidance from qualified professionals but the ones︀ I've reached out to have not been able to provide much certainty as they're also︁ looking for clarification.

 

[sergeylim88]

where does it say that you will become mainland company if you use the small‌ business relief?
freezone companies can use it, if they are not qualifying person (at least‍ in my understanding, i wrote about this few pages back)

i didn't find anything in⁠ official documents that says if you use this one year you can't be a qualifying⁤ freezone person next year. being qualifying freezone person depends on type of your income and⁣ few other things, and small business relief is not mentioned anywhere

 

[SasuT]

Sorry guys, after 20 pages I’m still not sure of a clear answer. I guess‌ nobody really knows for now, right?

Let’s take an example that represents a lot of‍ businesses here.

Digital Marketing Agency.
Based in a Dubai Freezone.
Makes 400k-500k a year profit.⁠
Works with clients in Europe (B2B/B2C) fully online.

This example of company will now have⁤ to pay the 9% tax or no ?

 

[JustAnotherNomad]

Nobody really‌ knows because the tax will only kick in in 2024 for most people, first returns‍ will be due in september 2025.
That's when we will really know how they handle⁠ this.

All official documents published so far can only be interpreted as meaning you have⁤ to pay the 9% - because your example simply wouldn't fit the strict 0% criteria.⁣
However, it's of course theoretically possible that they will later say that the documents published⁢ only apply if you have UAE clients. But there is nothing like that mentioned in︀ the documents.

If they want to continue to offer 0%, then I'm sure we will︁ hear about it. If we don't hear anything, I would expect the 9%.
With 400-500k︂ in profits, you may be able to stay tax free by paying a high salary,︃ using small business relief, etc.
Check Fred's blog article.

 

[JustAnotherNomad]

Btw, you can get a binding clarification here:
https://tax.gov.ae/en/services/tax.clarifications.request.aspx
But it seems like the service‌ isn't available for corporate tax yet.

 

[Au999]

Article in The National yesterday specifically on freezones pretty much said anything not on excluded‌ list with no mainland activities is 0%. It also said the official 0% list of‍ activities is not exhaustive (can say THAT again) and more official clarification and ministerial edicts⁠ will follow.

Knowing The National isn't in a hurry to step on any toes it⁤ seems to give more weight to 2022 decisions read in conjunction with the new excluded⁣ list - as opposed to saying everything apart from shipbuilders and random heavy industry is⁢ taxed.

Sure read to me that way.

https://www.thenationalnews.com/bus...nd-free-zone-companies-what-you-need-to-know/

 

[Fred]

That's to︀ be very honest the redline for almost every tax professional we spoke to and what︁ we released on our Blog Article as well.

We are very sure we get soon︂ further clarifications if a Public Newspaper is pointing already in this direction.

 

[algotrader]

Not sure where‍ you read that. The article says the following:
It says that in order to︃ opt out of corp tax you have to do either business with other FZ person︄ or have "qualifying revenue" from non-FZ person (which means both inside or outside UAE) and︅ that is not excluded activity (like manufacturing or shipping). If the revenue is non-qualifying it︆ has to be below de minimis treshold to benefit from 0% CIT. This is in︇ line with what was said in the Deloitte presentation and PWC:
https://www.pwc.com/m1/en/services/... CT Law states,that︈ is not Qualifying Income.
Nowhere it says that income from outside UAE is treated differently︉ than income from a "non-FZ-person".

 

[Au999]

It says:

"Here is what we have learnt, alongside some implications and questions you should be considering.

The original guidance from 2022 – that said zero per cent corporate tax would apply to︁ free zone entities if no onshore trading was conducted – has been qualified quite extensively.︂

These qualifications are in the form of activities. Those on the list that are not︃ excluded are considered qualifying income. This means that no corporate tax is payable on them."︄

Key is that activities that are NOT excluded are 0% It then goes on to︅ say the qualified list is not exhaustive and will be expanded upon shortly.

Sure you︆ can say it's referring to a list of qualified activities when it says those on︇ the list that are not on the excluded list, but there is zero overlap between︈ the two official narrow lists of qualified and excluded activities, so why make a point︉ of saying that - if the list in question isn't ALL non excluded activities.

At least that's my take, just a take by a regular guy looking at the whole︊ picture - and like Fred and other providers are saying, wait and see - more︋ is coming.

So I wait.

 

[gatrader]

Guys and how about if the UBO of the company and only shareholder has residency‌ in another country (no substance) or has residency card but no rented apartment (so activity‍ is done outside UAE)?

 

[JackAlabama]

Do you have exec stuff in⁠ UAE or workers?

 

[Fred]

That's not only your take but literally the take of every tax⁠ professional we spoke to and based on we designed our DLS Dubai Statement.

Now if⁤ that's already published in a news paper you know what's coming next- Federal Tax Authorities⁣ Clarifications.

 

[gatrader]

Not really, but what if the only shareholder has Dubai residency (not living tough)?

 

[troubled soul]

[No content provided]

 

[OffshorePhantom]

What a mess UAE is doing. They made some clarifications but in the end, even‌ with those clarifications, there are still interpretations and speculations on what would be taxed and‍ what not.

UAE used to be a straightforward place for business where there were very⁠ few laws and they were very clear, now it is no more the case.

Also, the fact that with Freezones they promised 50 years of tax-free status and now they⁤ are doing this tells a lot about what could change in the next few years,⁣ maybe personal income tax, property tax etc? Who knows.

 

[JustAnotherNomad]

rof/%rof/%rof/% Typical UAE.

 

[manukahoney]

Well, I once asked the UK gov body‌ about some tax uncertainty - their answer was exactly the same, "please read this regulation".‍ Unless you have someone who can open the doors and talk to them face to⁠ face - all the "talk to us" services are a joke.

 

[OffshorePhantom]

The fact is that the real⁤ selling point of UAE was that it is business friendly and law simple and very⁣ clear. Now, although 9% CIT is not that high, UAE is transforming and it is⁢ no more the same business heaven it was before.

 

[Fred]

Just giving you a "behind the scenes" update on todays high level FTA Meeting with‌ leading Tax & Legal Firms:

We are Happy to confirm one more time that 99% of DLS Dubai⁣ Clients remain 0% Corporate Tax and 100% of DLS Dubai Clients are based in Designated⁢ Zone.

Congratulations!

 

[luap]

This makes sense regarding B2B‍ transactions, ie buying a pallet of goods from China and reselling them to an Indian⁠ business. One issue is that many are selling via Shopify/Amazon/Own website, and these are mostly⁤ to individuals, which are specifically excluded (as the law stands today). If they sell to⁣ an "Indian business" first, then that Indian business will be liable for corporate tax in⁢ India (which could then fall under UAE CFC/PE etc rules).

Excluded are:
"any transactions with︀ natural persons, except transactions in relation to the Qualifying Activities specified under paragraphs (d), (f),︁ (g) and (j) of the above section;", which are:

d. ownership, management and operation of︂ ships;
f. fund management services that are subject to the regulatory oversight of the competent︃ authority in the UAE;
g. wealth and investment management services that are subject to the︄ regulatory oversight of the competent authority in the UAE;
j. financing and leasing of aircraft,︅ including engines and rotable components;

If the above Linkedin post is clearly stated by the︆ ministry, it could be interesting for those selling directly to businesses, ie from China to︇ India or US companies, or even better they may come out and state it includes︈ selling to individuals too. I would say that for anybody who is on the fence︉ regarding the UAE, it's probably best to wait a few months and see.