UAE clarification of Freezone Qualifying Income

[bedouin]

Yes - need to find time for a separate Thread.

We worked out an overview including an legend however our existing clients have the first turn - still a lot of pending messages.

@ all DLS Dubai Clients with pending messages and questions - we see you and get back ASAP:

Should get something done during the late night hours.

Who is it you spoke/had a meeting with?

 

[lacomaco]

Who is it you spoke/had a meeting with?

I guess PWC

 

[alessio]

I would like to thanks @Fred for the last updates just post earlier in the forum.

"I am a bit confused about the following announcement :

No matter if you are doing E-Commerce or Marketing Services - it's a Qualifying Activity and therefore 0% Corporate Tax.

EXAMPLE

E-Commerce Qualifying Activity: Manufacturing or Processing of Goods (b)

Marketing Services Qualifying Activity: Any activities that are ancillary that are listed in paragraphs (a) to (l)"

(a) is referring to Mainland and International Business.


-> Most of the company are operating e-commerce & marketing services and sell internationally to individuals/companies - means there are under excluded activities no matter what right ? - and will not enjoy of Exemption.

Could you explain how E-commerce or Marketing services could be considered as Qualifying activity as you said as there are not listed inside the dedicated article from the gouvernement ?

I am just a bit lost and I really need to understand the following :

1 - Does my company in freezone doing marketing services internationaly will be exempted of tax ?
2 - What should I additionnaly manage to become qualified freezone person and how it will cost me totally (today i only get a licence).

Thank you in advance for your precisions.

By the way thank you for all informations provided here.

 

[Fred]

Long story short:

DLS Dubai Statement: UAE clarification of Freezone Qualifying Income

1. CORPORATE TAX: You are only paying 9% Corporate Tax if you are running one of the Excluded Activities. List of Excluded Activities: (a) is referring to Mainland and International Business. No matter if you are doing E-Commerce or Marketing Services - it's a Qualifying Activity and...

www.offshorecorptalk.com

 

[troubled soul]

Cabinet & Ministerial Decisions Release: Corporate Tax Rules for Free Zones Key Takeaways

 

[Au999]

Start writing a complete truth.
Freezone company is not tax free if:
- Company does not have a real office
- Company does not have a real staff
- More than half of decisions of director/directors is made outside of UAE
- More than half of suppliers are from outside of UAE
- Company is formed for tax optimization only
- Company has customers in UAE which are not in a freezone (mainland customers)

No freezone has authority to set any tax rules. Rules are set by the law only. Federal tax authority can issue explanatory acts.

I understand that the most of your customers are people who just form a company in IFZA by using your service, obtain visa, open bank account and use it all for tax fraud in a high tax country or at least wealth hidding. The most of them just use it for crypto withdrawal to fiat without legal tax reporting in a country where they reside in reality.

Just accept actual situatuon and say truth:
UAE is not willing to close eyes on all of this shady companies / residents any more. I understand, it will harm your business a lot. But that is how it is.

Law was published and is valid. There will be no more explanatory acts from FTA nor Ministry.
Telling that there is something ubclesr is not a truth. You are just trying to buy some time for your falling business this way.

I'm getting pretty annoyed at these posts generalising and attacking people. I'm a customer of @Fred and live full time in Dubai, don't own any crypto and am just getting on with running my successful online biz. Not a criminal and not a fraudster. Just a regular guy who like all the regular guys are gaping in awe at Dubai's massive rug pull.

Why a country would set up several freezones specifically for internet and digital services companies and then completely ignore internet and digital services when it comes to qualifying income is bizarro.

Like I say a massive rug pull. Or they just forgot and will issue some more laws in the coming weeks. Probably the latter. Who knows.

Sure folks are rightly angry at the way this has been pushed through during a live tax year in contradiction to pretty much all global norms but stop with the attacks eh?

Fred's a good guy has helped me enormously. His clients are NOT mostly tax frauds - and coming out with crap like that only defeats the other good points you make.

This is all an epic cluster** and Dubai have for sure harmed their reputation here but still not on the level of say Britain over the past few years

 

[stb]

Is software development considered "Manufacturing and processing of goods and materials" ?

I agree with gloomy outlook of dubai as tax haven. There few key events past few years that suggest dubai is rapidly turning into a tax hell. Namely: sales tax, emiratization, corp tax and recent confusing and suprising decrees. How could uae defy west geopolitically but not financially ?

Any thought on this cayman freezone Offshore Cayman Special Economic Zone ? Please recommend similar freezones.

 

[alessio]

-> Most of the company are operating e-commerce & marketing services and sell internationally to individuals/companies - means there are under excluded activities no matter what right ? - and will not enjoy of Exemption.

Could someone explain how E-commerce or Marketing services could be considered as Qualifying activity as @Fred said as there are not listed inside the dedicated article from the gouvernement ?

I am just a bit lost and I really need to understand the following :

1 - Does my company in freezone doing marketing services internationaly will be exempted of tax ?
2 - What should I additionnaly manage to become qualified freezone person and how it will cost me totally (today i only get a licence).

 

[lacomaco]

-> Most of the company are operating e-commerce & marketing services and sell internationally to individuals/companies - means there are under excluded activities no matter what right ? - and will not enjoy of Exemption.

Could someone explain how E-commerce or Marketing services could be considered as Qualifying activity as @Fred said as there are not listed inside the dedicated article from the gouvernement ?

I am just a bit lost and I really need to understand the following :

1 - Does my company in freezone doing marketing services internationaly will be exempted of tax ?
2 - What should I additionnaly manage to become qualified freezone person and how it will cost me totally (today i only get a licence).

I think what Fred wrote was ancilliary services related to manufacturing entitle the income to be qualified (meaning qualified for 0% tax). It is very hard to believe that someone only trading and not manufacturing could be considered as an ancilliary service. Especially if it is crypto. But I might be wrong.

Is software development considered "Manufacturing and processing of goods and materials" ?

I agree with gloomy outlook of dubai as tax haven. There few key events past few years that suggest dubai is rapidly turning into a tax hell. Namely: sales tax, emiratization, corp tax and recent confusing and suprising decrees. How could uae defy west geopolitically but not financially ?

Any thought on this cayman freezone Offshore Cayman Special Economic Zone ? Please recommend similar freezones.

The OECD hates free zones (I wrote about it a year ago) and put a lot of countries offering free zones onto its harmful tax practices list, and forced them not to have a separate, mainly tax free system. It seems that the UAE was also pushed at this direction.

 

[troubled soul]

As I told in older post ......Government Rules wording is very complex....One word here or there can change the whole equation .....
Thanks Fred for update....

I would like to wait more time...as There will be some correction and amendment to Law.....May be they will give the exact wording that "any type of Foreign income is excepted "........It will take time...but Hope for the best

 

[lacomaco]

Although it seems as semantics, but the rules published should define the taxation of economic activities: which are taxable and which are not. This decree/ruling uses just the opposite wording: non-qualifying income actually qualifies for corporate income tax, while qualifying income qualifies for no tax. I do not know if it is intentional or just sloppy way to describe the legal change, announced on the last day of the tax-free status for many companies

 

[JackAlabama]

Is software development considered "Manufacturing and processing of goods and materials" ?

By all logic, it should be. After all software is a good, immaterial tho, but nevertheless its a good like a playstation console.

I agree with gloomy outlook of dubai as tax haven. There few key events past few years that suggest dubai is rapidly turning into a tax hell. Namely: sales tax, emiratization, corp tax and recent confusing and suprising decrees. How could uae defy west geopolitically but not financially ?

Any thought on this cayman freezone Offshore Cayman Special Economic Zone ? Please recommend similar freezones.

 

[Marzio]

Manufacturing and processing of goods and materials

While it's true that you can sell software as a good, in this phrase they are most likely referring to something physical, tangible in the real world.

manufacturing

1. the business of producing goods in large numbers: 2. the business of…

dictionary.cambridge.org

 

[troubled soul]

While it's true that you can sell software as a good, in this phrase they are most likely referring to something physical, tangible in the real world.

manufacturing

1. the business of producing goods in large numbers: 2. the business of…

dictionary.cambridge.org

English is not first language of Arabs ...All laws originally rewritten in Arabic ....We get the translated version ..May be in Arabic , all tangible and non tangible product fall under one category.....
Just my two cents

 

[lacomaco]

By all logic, it should be. After all software is a good, immaterial tho, but nevertheless its a good like a playstation console.

Sorry but I disagree. Microsoft is not selling ownership of the software, only the right to use it (with lots of restictions). You are buying the right to use the intellectual property. Playstation console is a physical, so if you manufacture the console then yes it can be called as "goods". I am quite sure that software development itself is not covered by the "Manufacturing and processing of goods and materials" tax-free activity.

 

[Marzio]

I am quite sure that software development itself is not covered by the "Manufacturing and processing of goods and materials" tax-free activity.

Agree. If they wanted to include software they could say "software" somewhere but they didn't.

Let's be real guys, you don't "manufacture software"

 

[andrew28fl]

-> Most of the company are operating e-commerce & marketing services and sell internationally to individuals/companies - means there are under excluded activities no matter what right ? - and will not enjoy of Exemption.

Could someone explain how E-commerce or Marketing services could be considered as Qualifying activity as @Fred said as there are not listed inside the dedicated article from the gouvernement ?

Haven't they clearly stated that intellectual property assets and any ancillary activities are excluded activities? I think this specifically means IT related services like websites, marketing, e-commerce etc. Please correct me if I am wrong.

Read the paragraphs below (taken from UAE: Is income of free zone businesses subject to zero per cent tax?)

The “excluded activities” with few exceptions and conditions includes the activities with natural persons, banking activities, insurance activities, financing and leasing activities, ownership, or exploitation of immovable property (other than commercial property located in a free zone, where the transaction in respect of such commercial property is conducted with other free zone persons) and intellectual property assets, and any activity that is ancillary to any of these activities.

If the QFZP fails to meet any of the six conditions as mentioned above, then the QFZP shall cease to be recognised as such an entity from the beginning of the relevant tax period and for the subsequent four tax periods.

 

[lacomaco]

Haven't they clearly stated that intellectual property assets and any ancillary activities are excluded activities? I think this specifically means IT related services like websites, marketing, e-commerce etc. Please correct me if I am wrong.

Read the paragraphs below (taken from UAE: Is income of free zone businesses subject to zero per cent tax?)

Hmmmmm... These regulations are using "qualified activies", "qualifying income" and "excluded activities"... Is Excluded activities just the opposite of "Qualifying activities" or something different? Totally crazy, and the worst is that it is up to interpretation - so I might be wrong or right, who knows...

 

[andrew28fl]

Hmmmmm... These regulations are using "qualified activies", "qualifying income" and "excluded activities"... Is Excluded activities just the opposite of "Qualifying activities" or something different? Totally crazy, and the worst is that it is up to interpretation - so I might be wrong or right, who knows...

 

[troubled soul]

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The general and default position is that any company incorporated in the UAE is subject to corporate tax. In cases where a company is in a freezone and only generates income from transactions with international or freezone entities, it may not have to pay the corporate tax, contingent on fulfilment of certain conditions. This includes, among others: having adequate substance in the UAE, and adequate financial statements.
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Got update from Tax Lawyer.....but They still use word "may"