What is Qualifying Income in UAE Corporate Tax?

We've got a detailed guide to Corporate Tax (CT) in the UAE, with all the ins and outs. Here's the lowdown:

• companies pay 9% tax on yearly taxable income above AED 375,000;
• income up to AED 375,000 is tax-free (0% rate);

There's a way for companies to pay 0% Corporate Tax in the UAE — by registering in a Free Zone and deriving Qualifying Income. Let's explore what qualifying income actually means and how your business can benefit from it.

Qualifying income refers to the portion of a Free Zone entity’s revenue that remains eligible for the 0% Corporate Tax rate.

In simple terms, it’s the income that meets specific requirements under the UAE Corporate Tax regime and the Ministerial Decision No. 139 of 2023. This ensures that Free Zone entities continue to receive preferential tax treatment.

Free Zones are special economic zones in the UAE designed to attract foreign investment by offering incentives such as 100% foreign ownership and simplified customs procedures. Companies can operate here tax-free for up to 50 years if they meet specific requirements.

Under the Corporate Tax framework, Qualified Free Zone Persons (QFZP) can benefit from a 0% tax rate on their qualifying income if they meet certain requirements:

• Maintain adequate substance in the UAE — team, office, assets.
• Do not elect to be subject to standard Сorporate Tax.
• Comply with Transfer Pricing Rules and other regulatory requirements.
• Meeting a De Minimis requirement. This limits the non-qualifying revenue they can earn. They can retain the QFZP status.

The De Minimis Rule permits Free Zone Persons to maintain their QFZP status, even if they earn a small amount of non-qualifying income, provided that it does not exceed 5% of their total revenue or AED 5 million, whichever is lower.

If this threshold is breached in any tax period, the entity loses its 0% status and becomes subject to 9% Corporate Tax on its entire taxable income for that period.

If a Free Zone Person earns both qualifying and non-qualifying income, De Minimis Rules apply.

Here is a simple way to check whether you meet these criteria by checking these things:

Although you might end up owing taxes under some circumstances, by keeping track of your income properly, you can often avoid that. The UAE offers many ways for tax optimizations, such as Small Business Relief for companies that meet specific requirements. To make the most of all these perks, you'll need to know the ins and outs of local laws and regulations. That's where a team of pros with years of experience in the UAE can help out.

movingo is an all-in-one platform for company formation, visas, and everyday legal in the UAE. We're here to help and make sure you don't run into any roadblocks along the way. Check this out: