Recent Corporate Tax Changes

Recent decisions in the UAE (Cabinet Decision No. 100 of 2023 and Ministerial Decision No. (265) of 2023) have introduced significant changes for Free Zone (FZ) entities corporate tax:

1. Qualifying Income Definition Expansion:

   – Now includes ‘Income derived from the ownership or exploitation of Qualifying Intellectual Property,’ targeting companies engaged in research and development related to intellectual property.

2. Qualifying Activities Enhancement:

   – Expanded to cover the ‘Trading of Qualifying Commodities,’ involving physical and derivative trading on commodity exchanges, applicable in any FZ approved for Corporate Tax (CT), not limited to Designated Zones.

3. FZ Substance Requirements Clarification:

   – Core income-generating activities for FZ substance requirements are defined as significant functions driving business value, excluding mainly support activities.

4. Holding of Shares and Securities Modification:

   – ‘Holding of shares and other securities’ is now ‘Holding of shares and other securities for investment purposes,’ requiring an uninterrupted holding period of at least 12 months.

5. Headquarter Services Clarification:

   – Expanded to include administering, overseeing, and managing Business Activities of Related Parties, covering various management and support services.

6. Ships Operation Definition Expansion:

   – ‘Ownership, management and operation of Ships’ now includes towing activities and general assistance to Ships at sea, as well as dredging activities at sea.

7. Qualifying Income Specifics:

   – Removed reference to ‘incidental’ income. ‘Ancillary’ activities are defined as necessary for the main Activity.

8. Additional Qualifying Activities Explanation:

   – Further clarification on Qualifying Activities, aligning with the Public Consultation Document issued in July 2023.

Summary of Cabinet Decision No. 56 of 2023 (Effective from 1 June 2023):

1. The nexus of a Non-Resident Person in the UAE for tax purposes under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses has been defined.
2. A Non-Resident Person has a nexus in the UAE if it earns income from any Immovable Property in the State.
3. An “Immovable Property” is any land, buildings, structures, engineering works, fixtures, equipment permanently attached to land or structures, or attached to the seabed.
4. Any Income attributable to Immovable Property includes rights in rem, sale, disposal, assignment, direct use, letting, subletting, and other forms of property exploitation.
5. Any Non-Resident Person with a nexus in the State must register with the Authority in accordance with Article 51 of the Corporate Tax Law.
6. An artificial transfer of Immovable Property rights without valid commercial or non-fiscal reasons is considered as an arrangement for obtaining a Corporate Tax advantage.