Difference Between Excluded and Qualifying Activities Under UAE CT Law

The UAE introduced the corporate tax law in June 2023. The introduction of the new tax regime had a significant impact on the tax and economic landscape of businesses. Many business entities in the UAE are still trying to figure out the implications of the new regime for their businesses. In order to give further guidance, the FTA has been publishing various guides to help the business entity and the public get a clear insight into the new tax regime. Recently, the FTA issued a further clarification on the qualifying income, qualifying activities, and excluded activities, along with an explanation of the de minimis requirements. In this blog, we will shed light on the difference between the excluded and the qualifying activities.

What are the Qualifying Activities Under the UAE CT law?

The activities that are considered qualifying activities conducted by a qualifying free zone person are clearly defined under Ministerial Decision No. 139 of 2023, which include the following activities as listed below:

• Any activity related to the manufacturing of goods or materials
• Any activity related to the processing of any goods or materials
• Any activity related to the holding of shares or any other securities
• Any ownership, management, and operation of ships
• Any kind of reinsurance service that is subject to the regulatory oversight of the relevant competent authority in the UAE
• Any kind of management of fund services that are subjected to the regulatory oversight of the relevant competent authority in the UAE.
• Any kind of service engaged in wealth and investment management that is subject to the regulatory oversight of the relevant competent authority in the UAE.
• Any kind of headquarters service to the related parties
• Any Treasury or financing services to related parties
• Any kind of financing and leasing of aircraft, including engines and any rotable components
• Any kind of distribution of goods or materials in or from the designated zone to any customer who resells such goods or materials or any parts or engages in processing or alteration of such goods or materials for the purpose of sale or resale
• Any kind of logistics service
• Any kind of ancillary activity to the above-listed activities

Ancillary activity will be an activity when it is considered to serve no independent function and is necessary for the performance of the main qualifying activity.

What Are The Excluded Activities Under the UAE CT law?

The activities from which the income is not included in the qualifying income are considered excluded activities. As per the ministerial decision, the excluded activities include the following:

• Any transaction with a natural person, excluding any transaction related to qualifying activities
• Any kind of banking, insurance, finance, or leasing activity that is subjective to any relevant oversight of the competent authority in the UAE is subjective to certain exceptions.
• Any kind of ownership or any exploitation of any immovable property, excluding any commercial property, which is situated in any free zone where any such transaction of commercial property is conducted with any other free zone person
• Any ownership or any kind of exploitation of various intellectual property assets
• Any such activity ancillary to the above activities.

What are the De Minimis Requirements?

The de minimis requirement is said to be satisfied when any non-qualifying amount earned by the qualifying free zone person in a certain tax period is not more than the below-stated criteria:

• 5% of the total revenue of the qualifying person OR
• AED 5000,000

FTA has issued the ministerial decision, which clearly states the difference between the qualifying and the excluded activities. The clarification issued by the authority is of the utmost importance, especially for the qualifying person to distinguish between the excluding and the qualifying activities. The firms that need further assistance must approach tax specialists like CDA to get more clear insights.

CDA as Your Corporate Tax Specialist

CDA, being one of the best auditing, accounting, and tax consulting firms in the UAE, has a team that is equipped with knowledge of the new CT regime, which makes them an excellent team of consultants who can assist you in solving the intricacies of the new regime. Evaluate the application of the new regime to your business in the UAE and set up the best compliance framework to avoid penalties with the help of CDA. To learn more about our services, approach us now.