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UAE Corporate Tax Law: Updates on Free Zone Regulations

UAE Corporate Tax Law: Updates on Free Zone Regulations


Recent legislative changes in the United Arab Emirates (UAE) have introduced substantial revisions to the rules governing Free Zones (FZs) under the UAE Corporate Tax law. The Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023, effective 01.06.23, replace the previous Cabinet Decision No. 55 of 2023 and Ministerial Decision No. 139 of 2023. These new decisions are crucial in defining Qualifying Income (QI) for Qualifying Free Zone Persons (QFZP) and outlining Qualifying Activities (QA) and Excluded Activities (EA).


Let’s explore detailed clarifications for the financial sector.


1. Qualifying Activities Defined


    Holding of Shares and Securities: The activity now specifically pertains to ‘Holding of shares and other securities for investment purposes,’ emphasizing a minimum holding period of 12 months.


    Fund Management Services: Encompasses portfolio and risk management, discretionary and non-discretionary services, and related day-to-day investment fund operations. This includes activities delegated to investment advisors or sub-advisors under state regulatory oversight.


    Wealth and Investment Management Services: Defined as discretionary and non-discretionary investment management, including portfolio management and advisory services, under the supervision of the competent authority.


    Treasury and Financing Services to Related Parties: This includes cash and liquidity management, financing, debt management, and associated advisory services provided to related entities.


    Trading of Qualifying Commodities: Expanded to cover commodities’ physical and derivative trading on approved exchanges, applicable across all FZs recognised for Corporate Tax (CT) purposes.


    Headquarters Services to Related Parties: Entails managing and overseeing business activities of related parties, including general management, insurance, administration, procurement, planning, risk management, and other support services.


    2. Excluded Activities Outlined


    Banking Activities: Defined in accordance with Article (65) of Federal Decree-Law No. 14 of 2018.


    Finance and Leasing Activities: Encompasses credit provision, financing, and leasing arrangements under the regulatory oversight of the competent authority.


    3. Competent Authority Defined


    Includes the Central Bank of the UAE, Dubai Financial Services Authority, Financial Services Regulatory Authority of the Abu Dhabi Global Market, and the Securities and Commodities Authority, as applicable.


    4. Income Classification Adjustments


    – The concept of ‘incidental’ income has been removed from Qualifying Income.
    – ‘Ancillary’ activities are now defined as those essential for executing a main Qualifying or Excluded Activity.


    5. Substance Requirements in Free Zones


    How TME Services Can Support


    These regulatory changes mark a significant step in refining the UAE’s tax framework, especially for entities operating within Free Zones. By providing clarity on qualifying and excluded activities, particularly in the financial services sector, these decisions aim to enhance compliance and operational transparency. Entities within these zones must align with these definitions and requirements to ensure adherence to the revised corporate tax regulations in the UAE.


    TME Services is a team of 45 professionals in legal-, tax-, accounting and compliance with over 18 years of experience. We advised a significant number of SMEs in the context of the implementation of the tax framework in the UAE and KSA over the last decade to make sure that our clients are well-oriented in the new and fast-evolving tax landscape and to reduce the legal liability of managers which may arise in connection with non-compliance.

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