November 29, 2023

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UAE Company Tax: Anticipation at its peak as free zone companies await 0% ‘qualifying revenue’

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The affirmation of the qualifying revenue benchmark will even be of significance to the numerous UAE free zones, given the readability it brings of their dealings with current entities licensed by them and potential ones they need to join.

The UAE Company Tax comes into impact June 1. 

In keeping with Raju Menon, Chairman and Group Managing Accomplice at Kreston Menon, “Earnings that conforms to enterprise ‘restrictions’ of every free zone authority needs to be considered QI.

“Accordingly, export of products from a free zone, the commerce in items inside a free zone or between free zones – and with none ‘contamination’ within the UAE mainland – could also be considered qualifying revenue for the ‘qualifying free zone particular person’.”

“So would any ‘passive revenue’ earned by free zone firms.”

These are the confirmations that every one stakeholders need to from the Ministry of Finance. In current weeks, debates have intensified over whether or not companies ought to retain their free zone standing or go for a full license from the mainland. Notably amongst these companies with a heavy chunk of their revenue derived direct from operations or providers rendered on the mainland.

In keeping with Deepak Bansal of AskPankaj Tax Advisors, “The scope of qualifying revenue is an evolving situation. The essential level is to know the refined distinction between honoring the promised tax incentives (given to free zone licensed firms) and providing a brand new set of tax incentives.”

“The idea of proportionate taxation is prevalent in India for tax incentives to firms based mostly in Particular Financial Zones (SEZs) and sure different international locations,” mentioned Bansal. Singapore affords ‘activity-based’ tax incentives as in comparison with ‘entity-based’ incentives, requiring proportionate willpower of eligible/ineligible taxable revenue.”

The UAE mannequin on qualifying revenue – and subsequent free zone incentives – can be based mostly on best-of-breed laws from different jurisdictions on how they deal with revenue generated by such entities.

“Free zones have been conceptualized as worldwide buying and selling/manufacturing hubs,” mentioned Bansal. “The revenue from exports (items and providers), and buying and selling inside free zones, is prone to be handled as QI. “The fenced areas of free zones (linked to ports) are handled as exterior UAE for VAT/customized functions. Import of products from such areas to mainland might also be categorized as QI, i.e., at par with non-resident suppliers’ revenue from items imported into mainland UAE.

“Sure passive incomes might also qualify as QI. Every other revenue could also be taxed at 9 per cent leading to proportionate taxation ideas. The idea of ‘disqualifying revenue’, if launched, may nonetheless have ramifications on enterprise operations.”

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