UAE clarification of Freezone Qualifying Income

[TheCryptoAnt]

Oh great, thanks! So you have to give them $250k to invest?

Not for them to invest it but you have to buy things through them.
They have access to literally every market you can think of.

If you want to play it safe and buy SPY they are cool with that, they make money from management/maintenance fees.

So there’s really no limit? 6-9 figures? There must be a limit no?

He said no limit, but granted I didnt ask for 9 figures as im smaller than that.

 

[jafo]

Covered in below thread. So lets stick to topic here thanks.

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There seems to be a lot of cognitive dissonance here. The law as it's written is clear when it comes to Qualifying Activities yet people are stretching definitions and grasping at straws in disbelief of what they read and that they will now be paying 9% tax. This is a normal human reaction when such an abrupt change in taxation has occurred to a historically tax free status quo.

UAE did not just overlook mentioning the entire tech and eCommerce sector by accident...lol. In reality the UAE is more likely expecting a some disgruntled people but anticipating that 9% tax will not be a deal breaker for most as its still a highly competitive tax rate and they may feel people love living in UAE enough to pay - rightly or wrongly....lol.

@Martin Everson help me figure this out then....

I'm living in Zurich. My company is in Zug, Switzerland. I'm paying a total tax of 8.63% now. With every deduction known to men. Why would I want to spend an extra *$20K & start a company in the UAE to pay 9% ????

What am I missing?

***$20K = including, but not limited to incorporation fees, hotel accommodations, 1st class tickets, restaurants etc etc

 

[Martin Everson]

@Martin Everson help me figure this out then....

I'm living in Zurich. My company is in Zug, Switzerland. I'm paying a total tax of 8.63% now. With every deduction known to men. Why would I want to spend an extra *$20K & start a company in the UAE to pay 9% ????

What am I missing?

***$20K = including, but not limited to incorporation fees, hotel accommodations, 1st class tickets, restaurants etc etc

Nothing. People are paying 5% effective in Malta also.

But lets stick to topic here. As its very relevant to many people here .

 

[bedouin]

Nothing. People are paying 5% effective in Malta also.

But lets stick to topic here. As its very relevant to many people here .

@Martin Everson I appreciate all your input and you seem a very realistic guy, and for what I read you have not bought into all the auto-lies of people blindly believing they can get away from the 9% CT. What I don't understand, out of all respect, is how there is a sticky by an ifza reseller here stating the complete opposite and there is not only no moderation, but it's tagged as "news" giving all readers here the false impression that this info is final and even has the blessing of the moderators here.

Just really wanting to understand.

Thanks again.

 

[bisk]

I'm living in Zurich. My company is in Zug, Switzerland. I'm paying a total tax of 8.63% now.

How? The Canton of Zug has effective rate of 11.8%.

 

[JackAlabama]

How? The Canton of Zug has effective rate of 11.8%.

you can deduct stuff. There is a lot you can do. Also one can work with debt etc.
He stated that as well.
You quote like the base line tax, but it can be lower according to your individual case.

 

[Marzio]

What am I missing?

Personal taxes?

 

[jafo]

How? The Canton of Zug has effective rate of 11.8%.

Deductions, my friend.

Examples of deductions:
I have to fly to another country to make things happen. Sitting on my a*s in Switzerland accomplished zero!
Fly to Asia to oversee the procurement/manufacturing. Expenses are flights (1st class), hotels, 5 stars, meals with suppliers etc etc.
Fly to clients in Europe, Asia, the Caribbean, and Latin America to get more orders. Expenses are flights, (1st class), hotels, 5 stars, meals with suppliers, etc etc.
Chinese intensive language classes, traveling with a Chinese interpreter. Same with Latin American etc etc. All these things are expenses.

Zug gets 7 digits in "taxes" from me every year... What more do they want?


"The statutory accounts of a Swiss company are the basis for determining taxable income. To be tax deductible, an expense has to be booked in the statutory accounts accordingly.

Generally, all business expenses that are booked in the statutory accounts are tax deductible, assuming they are economically/commercially justified from a tax perspective. If an expense is not a justifiable business expense in the sense of the tax law, it will be added back to taxable income. Examples typically include excessive depreciation, non-justified payments to related parties (e.g. hidden profit distributions), etc."

Source: Deductions

@Martin Everson I appreciate all your input and you seem a very realistic guy, and for what I read you have not bought into all the auto-lies of people blindly believing they can get away from the 9% CT. What I don't understand, out of all respect, is how there is a sticky by an ifza reseller here stating the complete opposite and there is not only no moderation, but it's tagged as "news" giving all readers here the false impression that this info is final and even has the blessing of the moderators here.

Just really wanting to understand.

Thanks again.

I can answer this for Martin.

I have an associate, let's call him Ali, from a NON-EU country. He can't and doesn't want to move to Switzerland or Malta, but the Dubai/UAE solution is definitely for him. He and his family are also Muslims, so they will fit right in. He prefers THAT society to the Swiss one. He also went to Malta and didn't like it.

The ifza reseller, in this case, is perfect for Ali. The 9% CIT is almost 40% lower than what he is paying right now where he is.

The ifza reseller is indispensable for Ali (in this case).

DBS wants 250k invested through the bank (not cash). They dont care on what its that you put the money on, just invest it.

I'm interested in this. Which DBS? Do you have a link?
Thank you and much appreciated with whatever you can provide.

 

[sergeylim88]

DBS wants 250k invested through the bank (not cash). They dont care on what its that you put the money on, just invest it.

Crypto ok any amount so far I can show where it comes from. Trading records ok but preferably some sort of report from Koinly/Cointracker so its easier to understand.

Multicurrency debit/credit cards available.
IBAN in different currencies available too.

Some services charges here and there but cheap overall.

does this mean they offer debit card in usd?
meaning it is connected to usd account
please help me understand

 

[TheCryptoAnt]

I'm interested in this. Which DBS? Do you have a link?
Thank you and much appreciated with whatever you can provide.

Singapore branch | Treasury Deposit, Trading & Investment Plans | DBS Treasures Singapore

does this mean they offer debit card in usd?
meaning it is connected to usd account
please help me understand

They can get you USD denominated cards yeah.
Also a multicurrency debit card (similar to Wise), or credit card.

Tbh the whole thing with them is that they want to make money off you via fees.
Maintenance, card, custody, etc.

So far they are doing it, they can get you almost whatever you want in terms of cards, weird currency accounts, etc
Crypto is ok with them so far your SOF is clear.

 

[sergeylim88]

did you have to go there physically?

 

[Konstanz]

UAE as jurisdiction slowly dying
So marketing, consulting, software and similar will be taxable even in freezones. Wow

 

[Cloudbanck]

UAE as jurisdiction slowly dying
So marketing, consulting, software and similar will be taxable even in freezones. Wow

Feels like they are doing 1970s style thinking, that manufacturing of physical products is what matters.

In reality manufacturing is on steady decrease as % of world GDP, and the whole world is losing manufacturing jobs. The world produces more stuff, but it does so ever more efficiently using less people and more automation.

As an example, on a typical IKEA item it says designed in Sweden, produced in Vietnam. You want to be Sweden here, not Vietnam, and even less the unnamed countries the raw materials come from. The value is more and more in the innovation, intellectual, intangible work (yes consulting, software, marketing, design) , and less and less in producing stuff. This trend is not stopping.

It used to be that Agriculture was like 90% of world GDP, and most people were working in this sector. Now it's only a few percent if even that of world GDP, and employs few people - yet more agricultural goods are produced than ever. Same thing is happening with manufacturing.

The UAE used to be good at aiming for the future and not the past, weird how they chose what to apply the corporate tax to.

 

[Konstanz]

Software for example clearly fits into category of excluded activity:
(f) Ownership or exploitation of intellectual property assets.

So for IT startups FZs are pointless

 

[troubled soul]

Found new tool ....Hope this helps you in tax related query

TaxGPT by Virtuzone | World's First AI-Powered UAE Corporate Tax Assistant

If Software company with all international income subjected to corporate tax

If a software company is a Resident Person in the UAE, then all its UAE and non-UAE sourced income is within the scope of Corporate Tax, subject to certain exemptions. However, if the software company is earning income abroad through foreign subsidiary entities, such income would generally be outside the scope of Corporate Tax. Additionally, a Resident Person may elect to claim an exemption from Corporate Tax under Article 24 for income earned by a Foreign Permanent Establishment that is subject to tax in the relevant foreign jurisdiction.

 

[Berti]

I don't know if this guide from the UAE tax office was linked here already or not (too many posts):

https://mof.gov.ae/wp-content/uploads/2023/05/FINAL-CT-Guide-English-12.5.23.pdf

Do I understand something wrong? The AED 375.000.- profit threshold is only for mainland companies???

"As such, the rates of Corporate Tax set by this Article will apply as follows:
● 0% on Taxable Income up to and including AED 375,000;
and
● 9% on Taxable Income above AED 375,000.

A Qualifying Free Zone Person will not be able to benefit from the 0% tax threshold as mentioned above"

 

[jafo]

Found new tool ....Hope this helps you in tax related query

TaxGPT by Virtuzone | World's First AI-Powered UAE Corporate Tax Assistant

Great job! I asked these three questions and asktaxGPT struggled for a few minutes.
I think it went to wake up the people who wrote that gibberish they labeled as Corporate Tax

Also this:

Let the chips fall where they may ​

 

[taoasher]

The new tax regime is intended to apply only to income derived from activities that are performed exclusively in or from within a Free Zone. This is known as 'Qualifying Income', which includes income derived from transactions with other Free Zone Persons as well as domestic and foreign-sourced income derived from conducting any of the 'Qualifying Activities' listed in the related Ministerial Decision 12.

Qualifying Activities include a range of operations such as manufacturing of goods or materials, processing of goods or materials, holding of shares and other securities, ownership, management, and operation of ships, reinsurance services, fund management services, wealth and investment management services, and other related activities 12.

Income from certain specific ‘Excluded Activities’ will not be treated as ‘Qualifying Income’ regardless of whether the income is derived from a Free Zone Person or as part of undertaking a ‘Qualifying Activity’. These 'Excluded Activities' include transactions with natural persons, certain regulated financial services activities, income derived from intangible assets, and income derived from immovable property, other than transactions with Free Zone Persons in relation to commercial immovable property located in a Free Zone 12.

If a Free Zone Person earns income from ‘Excluded Activities’ or earns any other income that is not ‘Qualifying Income’, they will be disqualified from the Free Zone Corporate Tax regime. However, there are de minimis requirements which allow the non-qualifying revenue earned by a Free Zone Person to not exceed the lower of either 5% of their total revenue or AED 5,000,000. If these de minimis requirements are not met or the Free Zone Person does not continue to meet any of the other qualifying conditions, the Free Zone Person will no longer be able to benefit from the Free Zone Corporate Tax regime for a minimum period of five years. During this period, the Free Zone Person will be treated as an ordinary Taxable Person and be subject to Corporate Tax at the rate of 9% on their Taxable Income above AED 375,00012.

The law also requires Free Zone Persons to have adequate substance in the UAE to be treated as a Qualifying Free Zone Person (QFZP). This includes performing core income-generating activities in a Free Zone, having adequate assets and an adequate number of qualifying employees, and incurring an adequate amount of operating expenditure2. Furthermore, Free Zone Persons seeking to be treated as a QFZP are required to prepare audited financial statements for the tax year2.

Based on this information, if your consulting business is not considered a 'Qualifying Activity', your income from the US clients could be subject to the 9% corporate tax if it exceeds the de minimis threshold.

This applies to all online/consulting/marketing businesses

 

[troubled soul]

Honestly speaking Since from first Day.....Everybody knew this ....But It is hard to accept this facts....as everybody assuming that Free zone will be excluded from Tax ...and they maintain the Tax free status....

 

[troubled soul]

UAE did not just overlook mentioning the entire tech and eCommerce sector by accident...lol. In reality the UAE is more likely expecting some disgruntled people but anticipating that 9% tax will not be a deal breaker for most as its still a highly competitive tax rate and they may feel people love living in UAE enough to pay - rightly or wrongly....lol.

It seems that the UAE government is either overconfident or out of touch with reality. The recent decision to impose a 9% tax on tech and e-commerce companies in free zones such as Dubai Internet City and Dubai Media City is a case in point.

These free zones are specifically designed to attract tech companies by offering them tax breaks and other incentives. By imposing a tax on these companies, the UAE government is essentially shooting itself in the foot.

Almost all companies in these free zones will be affected by the tax. This includes small businesses, startups, and multinational corporations. The tax will make it more expensive for these companies to operate in Dubai, and it could lead to job losses and a decline in investment.

The UAE government is gambling that the tech and e-commerce sector will still be able to thrive in Dubai despite the tax. However, this is a risky gamble. There are many other attractive places for tech companies to set up shop, and the UAE government could easily lose out on business to its competitors.

The recent influx of Russian population to Dubai may have given the government some confidence. However, this influx is not sustainable in the long term. The UAE government needs to focus on creating a business-friendly environment for all companies, not just those owned by Russians.

Only time will tell if the UAE government's decision to impose a tax on tech and e-commerce companies in free zones was a wise one. However, it is clear that this decision is a gamble, and it is one that could have a major impact on the future of Dubai.