Discover the key benefits and regulations for DMCC member businesses.
Welcome to understanding corporate tax
As a DMCC member company, navigating the UAE's Corporate Tax Law (Federal Decree-Law No. 47 of 2022) is crucial for your business success. Being part of a designated free zone, DMCC offers significant benefits, including a 0% corporate tax rate on qualifying income. This exemption, governed by the Corporate Tax Cabinet and Ministerial decisions, positions your business for optimal growth.
Gain essential insights into the UAE federal corporate tax legislation to ensure compliance. With the corporate tax framework effective for financial years starting on or after 1 June, 2023, understanding its implications is vital for effectively navigating the evolving business landscape in the UAE. Stay informed and empower your business with the knowledge needed to thrive in this dynamic environment.
UAE corporate tax FAQs
The UAE corporate tax is applicable for financial years starting on or after 1 June 2023. All businesses in the DMCC must register and comply with the new corporate tax regime.
All DMCC-registered or incorporated entities are required to register for UAE Corporate Tax. Entities that meet the conditions to be classified as a Qualifying Free Zone Person (QFZP) can benefit from a 0% tax rate on Qualifying Income, while others may be subject to a 9% tax rate on non-Qualifying Income.
To determine the tax rate, a DMCC company must first assess whether it qualifies as a QFZP by maintaining adequate substance, complying with transfer pricing regulations, and keeping audited financial statements. Income is classified as Qualifying or non-Qualifying, and mixed income will be taxed according to the de minimis threshold (the lower of 5% of revenue or AED 5 million). Non-Qualifying Income is subject to a 9% tax rate, while Qualifying Income may benefit from a 0% tax rate.
UAE Corporate Tax applies to DMCC entities based on their income sources and activities. If a DMCC entity meets the conditions to be considered a Qualifying Free Zone Person (QFZP), it can benefit from a 0% tax rate on Qualifying Income. This includes maintaining adequate substance, complying with transfer pricing regulations, and keeping audited financial statements. However, any income earned from non-Free Zone Persons or non-Qualifying Activities will be taxed at the standard 9% rate.
Additionally, DMCC entities must comply with specific rules concerning transactions with Free Zone and non-Free Zone Persons, as well as income derived from ownership or exploitation of Qualifying Intellectual Property. Businesses need to monitor their activities to ensure compliance with the UAE CT regime and apply the correct tax rate based on their income sources.
To be eligible for the 0% CT rate, a company must meet the conditions to be a Qualifying Free Zone Person. This includes maintaining adequate substance, complying with transfer pricing regulations, and keeping audited financial statements.
To qualify for the 0% Corporate Tax rate, a DMCC entity must engage in specific Qualifying Activities. Here are the major activities that can result in Qualifying Income:
Income derived from the ownership or exploitation of Qualifying Intellectual Property: This applies to companies generating income from intellectual property (IP) that carry out research and development themselves or through third parties (excluding trademark royalties).
Trading of Qualifying Commodities: This includes trading metals, minerals, energy, and agricultural commodities on recognised commodities exchanges, such as the Dubai Gold & Commodities Exchange.
Holding shares and securities for investment purposes: Investments held for at least 12 months, including cryptocurrencies, can qualify.
Headquarter services to related parties: This includes providing senior management, administrative services, risk management, business planning, and more to related parties.
Ownership, management, and operation of ships: Qualifying activities include towing, general assistance to ships at sea, and dredging activities.
Treasury and financing services to related parties: This includes cash management, financing, debt management, and financial risk management for related parties.
Other activities: Manufacturing, processing goods or materials, logistics, and reinsurance services also qualify.
Ancillary activities: Activities closely related to the above that support the performance of these main activities may also qualify.
