Outsourced Activities for the Test of Adequate Substance for 0% Corporate Tax Benefit to Free Zone Person:

Core income-generating activities can be outsourced to another Person (Related/ Unrelated) in a Free Zone or a Designated Zone for distribution activities depending on where such activities are required to be conducted, provided the Qualifying Free Zone Person (QFZP) has adequate supervision of the outsourced activity.

To have adequate supervision, a QFZP must put mechanisms and means in place to observe, oversee, assess, instruct, and provide guidance over the deliverables of the service provider in terms of quality, quantity, and timeliness.

A Free Zone Person should be able to demonstrate that it has adequate supervision through appropriate documentation, such as contractual agreements that set out how the supervision will be conducted and implemented from both practical and operational standpoints. The contractual arrangements should also be confirmed by the actual conduct of the parties.

If core income-generating activities are outsourced to another Person without adequate supervision, those activities would not be considered to be performed by the Free Zone Person and the requirement to maintain adequate substance in a Free Zone would not be met