New decisions on the tax of free zone companies in the UAE

The UAE Ministry of Finance announced the issuance of Cabinet Resolution No. 100 of 2023 on determining eligible income and Ministerial Resolution No. 265 of 2023 on eligible activities and excluded activities.

Younis Haji Al Khouri, UAE undersecretary of the Ministry of Finance, said that the new decisions reflect the importance of the role of free zones in the UAE’s economic diversification strategies and the country’s commitment to international tax standards, according to the Emirates news agency “WAM”, on Friday.

He added that the certainty of a competitive tax system for companies and the introduction of a special tax system for free zones strengthens the UAE’s position as a leading global Center for business and investment and supports its agenda related to sustainable development.

It is planned that, by the amended Cabinet decision, the scope of qualified income has been expanded to include the amount of qualified income achieved from the ownership or exploitation of qualified intellectual property calculated on the basis of the modified link approach of the organization for Economic Cooperation and development stipulated in Ministerial Decision No. 265 of 2023 issued by the ministry.

Ministerial Decree No. 265 of 2023 on eligible activities and excluded activities lists the trading of eligible commodities as a qualifying activity, which allows the application of a corporate tax in the free zone of 0 percent on income earned from the actual trading of metals, minerals, energy and agricultural commodities traded on an authorized market as well as the trading of financial derivatives associated with trading activities and used to hedge the risks involved in these activities.

In addition, the ministerial decision clarifies the intended scope of eligible and excluded activities, therefore it provides clarity and certainty to free zone companies.