Is a free zone company's income from other free zone persons qualifying?

Article 3 – Qualifying Income 1. For the purposes of application of Article 18 of the Corporate Tax Law, Qualifying Income of the Qualifying Free Zone Person shall include the below categories of income, provided that such income is not attributable to a Domestic Permanent Establishment or a Foreign Permanent Establishment in accordance with Article 5 of this Decision, or derived from the ownership or exploitation of immovable property in accordance with Article 6 of this Decision, or considered Taxable Income under Clause 2 of Article 7 of this Decision: a. Income derived from transactions with a Free Zone Person, except for income derived from Excluded Activities. b. Income derived from transactions with a Non-Free Zone Person, but only in respect of Qualifying Activities that are not Excluded Activities. c. Income derived from the ownership or exploitation of Qualifying Intellectual Property under Clause 1 of Article 7 of this Decision. d. Any other income provided that the Qualifying Free Zone Person satisfies the de minimis requirements under Article 4 of this Decision. 2. For the purposes of paragraph (a) of Clause 1 of this Article, income will be considered as derived from transactions with a Free Zone Person where that Free Zone Person is the Beneficial Recipient of the relevant services or Goods. 3. For the purposes of this Article, the term “Beneficial Recipient” shall mean a Person who has the right to use and enjoy the service or the Good and does not have a contractual or legal obligation to supply such service or Good to another person and the term “Good” shall mean tangible or intangible property that has economic value in dealing including movable and immovable property. 4. For the purposes of determining whether a Qualifying Free Zone Person has a Domestic Permanent Establishment, the provisions of Article 14 of the Corporate Tax Law shall apply and the expression “Qualifying Free Zone Person” shall be used instead of the expression “Non-Resident Person”, and the expression Cabinet Decision No. 100 of 2023 – As published by Ministry of Finance 3 “geographical areas outside the Free Zones in the State” shall be used instead of the word “State”, wherever used in that Article.

4.3. Scope of the Free Zone Corporate Tax rules The 0% Corporate Tax rate under the Free Zone regime applies to transactions and activities performed from within the prescribed geographical areas of Free Zones (including Designated Zones) and is intended to benefit Qualifying Income derived from the following sources: • Transactions with another Free Zone Person who is the Beneficial Recipient of the transaction, unless the transaction relates to: o Excluded Activities (see Section 11), o Immovable Property located outside a Free Zone, or o non-Commercial Property located in a Free Zone. • Transactions relating to Qualifying Activities (see Section 10) that are not Excluded Activities. • Income from Qualifying Intellectual Property that a Free Zone Person has developed (see Section 9). • Any other income where the de minimis requirements are met. Example 1: Transactions with a Free Zone Person Company A (a Free Zone Person) performs legal services solely for Free Zone Persons who are the Beneficial Recipients of those services. Transactions between Free Zone Persons are not required to be within the scope of Qualifying Activities to benefit from the 0% Corporate Tax rate on Qualifying Income. Consequently, income from Company A’s transactions will constitute Qualifying Income as long as it does not arise from Excluded Activities (for example, transactions with natural persons are normally Excluded Activities). As legal services are not Excluded Activities, Company A may still derive Qualifying Income from the services provided to juridical persons (who are Free Zone Persons and Beneficial Recipients of these services) and benefit from the 0% Corporate Tax rate on that income, even though legal services are not a Qualifying Activity. 4.3.1. Beneficial Recipient The 0% Corporate Tax rate on Qualifying Income is intended to apply to transactions between Free Zone Persons, provided the transactions do not relate to an Excluded Activity. However, to preserve the integrity of the rules, the 0% Corporate Tax rate only applies to those transactions if the recipient (i.e. the Free Zone Person) is the Beneficial Recipient of the relevant services or Goods.4 4 Article 3(3) of Cabinet Decision No. 100 of 2023. Corporate Tax Guide | Free Zone Persons | CTGFZP1 22