UAE Free Zone businesses now have clear directives on what constitutes ‘qualifying income’ when it comes to corporate tax, with the focus centered on two pivotal figures.
The ‘De-Minimis’ Threshold
Companies operating in free zones are required to ensure that their ‘non-qualifying’ revenues do not exceed 5 per cent of their total revenue or Dh5 million, whichever is lower. This limit, referred to as the ‘de-minimis’ threshold, is a critical determinant of their corporate tax obligations.
Consequences of Breaching the Threshold
If a business crosses the ‘de-minimis’ threshold, it will no longer be able to take advantage of the 0 per cent corporate tax available to free zone businesses. This rule will apply for an extended period of 5 years.
Businesses that exceed this limit will be treated as taxable enterprises and will be obliged to pay corporate tax at a rate of 9 per cent, provided their income for the year surpasses Dh375,000.
Summary:
- UAE Free Zone businesses must ensure ‘non-qualifying’ revenues stay below the ‘de-minimis’ threshold, which is the lower of 5 per cent of total revenue or Dh5 million.
- Breaching this threshold results in a loss of the 0 per cent corporate tax benefit for a period of 5 years.
- Companies crossing this limit are considered taxable enterprises and are required to pay a 9 per cent corporate tax if their annual income exceeds Dh375,000.
