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UAE clarification of Freezone Qualifying Income

J

joffreylol

Active Member
Jul 17, 2020
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#1
Just read this article but it's not clear to me about all the talk that foreign sourced income will be exempt. What do you guys think?

https://www.arabianbusiness.com/ind...stry-announces-freezone-tax-policy-exemptions
I'm not a lawyer or accountant but to me this looks totally opposite of what was being touted here. Don't worry foreign income will be exempt, they are just trying to please Ursula etc. To me it seems that you have to pay CIT unless you are building fucking ships or airplanes
 
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#2
Qualifying Activities include 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 that are subject to the regulatory oversight of the competent authority in the UAE; and wealth and investment management services that are subject to the regulatory oversight of the competent authority in the UAE.

They also include headquarter services to related parties; treasuring and financing services to related parties; financing and leasing of aircraft, including engines and notable components; logistics services; distribution in or from a designated zone that meets the relevant condition; and any activities that are ancillary to the above-mentioned activities.
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Yes, the list it is very limited. And it doesn't look like trading of financial assets such as crypto/commodities/forex falls into that category (only "holding" of securities). I expect that most FZ companies will have to pay corporate tax and they won't get the small business relief that mainland companies get. The only solution is for business owners to pay themselves a high salary but who knows for how long that will work and whether they are going to introduce an income tax soon. In addition, there are first reports of members here not being able to transfer funds between their UAE and EU bank accounts anymore. I don't think UAE is worth the hassle and cost anymore. Maybe Bahrain...but they will be the next to be grey/blacklisted
 
#3
yup so welcome to the 9% CT. LOL what a f-ing joke this is. What is the point of having a FZ at all unless you do ONLY one of the activities listed (or minimum 95% of that) under article 2 of;
https://mof.gov.ae/wp-content/uploa...ifying-Activities-and-Excluded-Activities.pdf


and for the actual source document of CT its this;

https://mof.gov.ae/wp-content/uploa...ision-No.-55-of-2023-on-Qualifying-Income.pdf
I think its the end of the uae for many people who generate income in the internet world, consulting etc etc. Why be in uae when you might as well setup in bulgaria at the same CT and have no s**t such as grey list
 
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#4
Unless @Fred has something to add to that list of qualifying activities looks like crypto people, ecommerce and consulting will be taxed.

a) Manufacturing of goods or materials.
b) Processing of goods or materials.
c) Holding of shares and other securities.
d) Ownership, management and operation of Ships.
e) Reinsurance services that are subject to the regulatory oversight of the competent authority in the State.
f) Fund management services that are subject to the regulatory oversight of the competent authority in theS tate.
g) Wealth and investment management services that are subject to the regulatory oversight of the competentauthority in the State.
h) Headquarter services to Related Parties.
i) Treasury and financing services to Related Parties.
j) Financing and leasing of Aircraft, including engines and rotable components.
k) Distribution of goods or materials in or from a Designated Zone to a customer that resells such goods or materials, or parts thereof or processes or alters such goods or materials or parts thereof for the purposes of sale or resale.
l) Logistics services.
m) Any activities that are ancillary to the activities listed in paragraphs (a) to (l) of this Clause
 
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#5
Logistics is pretty broad - lots of online/services stuff could no doubt be recategorized. 'logistics deals with the efficient forward and reverse flow of goods, services, and related information '
 
#7
2. Unless otherwise prescribed in this Decision or any other decision issued by the Minister, the activities
referenced in Clause (1) of this Article shall have the meaning provided under the respective laws regulating
these activities.
 
#9

UAE begins corporate tax roll-out, with free zones exempted​

https://www.reuters.com/world/middl...oll-out-amid-diversification-push-2023-06-01/​


I am not expert .....But Government Notification is too technical and one word here from there change the whole equation ...I still believe freezone companies whose business is not in mainland is exempted...
wait and watch......Hope for the best

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#10
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#15
joffreylol said:
Well, let's see what happens in the next couple of months but if things stay the same then freezones are worse than mainlands in terms of taxes
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How are they worse? Genuinely asking.


All in all, this is a giant backstab to the core of expats/businesses in UAE. All marketing companies, online service providers etc that have 0 UAE clients will be screwed.


Is there a limitation to how much salary you can pay out, and does it have to be strictly salary or can it be a Bonus?

Also, I agree it would be interesting to hear @Fred out. Total respect for the guy, but this turn of events has been exactly the opposite of his predictions. I'm pretty sure 99% of everyone here, and his clients, are screwed equally.


OffMyBack said:
I think its the end of the uae for many people who generate income in the internet world, consulting etc etc. Why be in uae when you might as well setup in bulgaria at the same CT and have no s**t such as grey list
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Umm.. isnt it blacklisted now again? Or at least in the BL EU recommendations list.
 
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#16
bedouin said:
How are they worse? Genuinely asking.


All in all, this is a giant backstab to the core of expats/businesses in UAE. All marketing companies, online service providers etc that have 0 UAE clients will be screwed.


Is there a limitation to how much salary you can pay out, and does it have to be strictly salary or can it be a Bonus?

Also, I agree it would be interesting to hear @Fred out. Total respect for the guy, but this turn of events has been exactly the opposite of his predictions. I'm pretty sure 99% of everyone here, and his clients, are screwed equally.
Click to expand...

Well I meant at least mainlands can benefit from small business relief, couple post above someone mentioned that free zones might not be able to apply for small business relief. It seems that they can but it's permanent decision.
 
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#17
bedouin said:
Is there a limitation to how much salary you can pay out, and does it have to be strictly salary or can it be a Bonus?
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I believe they clarified somewhere that they will follow OECD transfer pricing guidelines. In theory, I guess you can't pay out 100% of the profits as a salary, but in practice, I really can't imagine anybody will care.
Maybe leave 375k in the company (or whatever the threshold for the corporate tax was), pay anything above out as a salary. Maybe hire your wife, too, so you can get a second salary out of the company.
But how long until they introduce income tax on salaries as well? Wouldn't be surprised if they have it in 5-10 years.
Guess KSA will be happy...
 
#20
But no capital gains tax. I wonder if you could just set up an offshore company (maybe even a transparent entity like a US LLC) with a cheap nominee director (Philippines?) and then pay out "dividends" to yourself as a UAE tax resident.
I can't really imagine that the UAE will start investigating the substance of foreign companies anytime soon.
 
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