UAE Corporate Tax: Free zone businesses need to keep strict check on ‘disqualifying income’

UAE Corporate Tax: Free zone businesses need to keep strict check on ‘disqualifying income’

If at any time during a year, a free zone entity fails to meet any of the prescribed conditions for 0 per cent tax rate, it will remain ineligible for the rate for a further 4 years. Imagine that during an FTA audit (typically after 5-6 years) you are found to be ineligible as a qualifying free zone (QFZP). The tax incentives claimed during the intermittent 4 years will be automatically denied resulting in tax arrears and penalties. Do I have your absolute attention? Against widely-held popular beliefs, we introduced you to a concept of ‘disqualifying income’ in an April 23 comment piece, whereby the entire income of a ‘Free Zone Person’ becomes ineligible for 0 per cent rate. We also gave a meaning to the 9 per cent rate proposed in the decree law. We feel gratified both those concepts have been brought into the law through the recent decisions. ‘Qualifying income’ - the most enigmatic word until recently – is taxable at 0 per cent. The expression has two features: scope and the prescribed conditions. The scope looks easier to understand. Qualifying income comprises of: Subject to the de-minimis rule, qualifying income does not include: The conditions are