Difference between Excluded and Qualifying Activities under UAE CT Law

Difference between Excluded and Qualifying Activities under UAE CT Law

Understanding the Impact of UAE's Corporate Tax Law

In June 2023, the UAE implemented the corporate tax law, marking a significant shift in the tax and economic landscape for businesses. As businesses navigate this new regime, the Federal Tax Authority (FTA) has been proactive in providing guidance through various publications aimed at clarifying the implications of the tax changes. Recently, the FTA issued further clarification on qualifying income, activities, and exclusions, including de minimis requirements. In this article, we'll explore the distinctions between excluded and qualifying activities under the new tax law

What are the Qualifying Activities under the UAE CT law?

The Explanation of qualifying activities conducted by a qualifying free zone individual is explicitly outlined in Ministerial Decision No. 139 of 2023. These activities encompass the following

• Any activity related to the manufacturing of goods or materials
• Any activity related to the processing of any goods or materials
• Any activity related to the holding of shares or any other securities
• Any ownership, management, and operation of ships
• Any kind of reinsurance service that is subject to the regulatory oversight of the relevant competent authority in the UAE
• Any kind of management of fund services that are subjected to the regulatory oversight of the relevant competent authority in the UAE.
• Any kind of service engaged in wealth and investment management that is subject to the regulatory oversight of the relevant competent authority in the UAE
• Any kind of headquarters service to the related parties
• Any Treasury or financing services to related parties
• Any kind of financing and leasing of aircraft, including engines and any rotable component.
• Any kind of distribution of goods or materials in or from the designated zone to any customer who resells such goods or materials or any parts or engages in processing or alteration of such goods or materials for the purpose of sale or resale
• Any kind of logistics service
• Any kind of ancillary activity to the above-listed activities

Ancillary activity will be an activity when it is considered to serve no independent function and is necessary for the performance of the main qualifying activity.

What Are the Excluded Activities under the UAE CT law?

The activities from which the income is not included in the qualifying income are considered excluded activities. As per the ministerial decision, the excluded activities include the following:

• Any transaction with a natural person, excluding any transaction related to qualifying activities
• Any kind of banking, insurance, finance, or leasing activity that is subjective to any relevant oversight of the competent authority in the UAE is subjective to certain exceptions.
• Any kind of ownership or any exploitation of any immovable property, excluding any commercial property, which is situated in any free zone where any such transaction of commercial property is conducted with any other free zone person
• Any ownership or any kind of exploitation of various intellectual property assets
• Any such activity ancillary to the above activities.

What are the De Minimis Requirements?

The de Minimis requirement is considered fulfilled if any non-qualifying amount earned by the qualifying free zone individual in a specific tax period does not exceed the criteria outlined below:

• 5% of the total revenue of the qualifying person OR
• AED 5000,000

FTA has issued the ministerial decision, which clearly states the difference between the qualifying and the excluded activities. The clarification issued by the authority is of the utmost importance, especially for the qualifying person to distinguish between the excluding and the qualifying activities.

HOW CAN ALNABAHA HELP YOU

With a commitment to delivering services tailored to each client’s specific needs, ALNABAHA offers a wealth of expertise and knowledge to ensure seamless navigation of the Corporate Tax landscape in the UAE.

For comprehensive assistance and reliable support in managing your Corporate Tax obligations, visit www.alnabaha.com or reach out to our team of seasoned professionals for personalized consultation and guidance. With ALNABAHA CONSULTANCIES, you can ensure a smooth and hassle-free experience in addressing your Corporate Tax requirements and optimizing your business operations in the UAE.

Connect us today to schedule a consultation and learn how we can help your business grow.

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