Is income from a mainland branch of a free zone company taxed?

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.

Article 3 – Corporate Tax Rate 1. Corporate Tax shall be imposed on the Taxable Income at the following rates: a. 0% (zero percent) on the portion of the Taxable Income not exceeding the amount specified in a decision issued by the Cabinet at the suggestion of the Minister. b. 9% (nine percent) on Taxable Income that exceeds the amount specified in a decision issued by the Cabinet at the suggestion of the Minister. 2. Corporate Tax shall be imposed on a Qualifying Free Zone Person at the following rates: a. 0% (zero percent) on Qualifying Income. b. 9% (nine percent) on Taxable Income that is not Qualifying Income under Article 18 of this Decree-Law and any decision issued by the Cabinet at the suggestion 1 Definition added as per Federal Decree-Law No. 60 of 2023. 2 Definition added as per Federal Decree-Law No. 60 of 2023. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 8 of the Minister in respect thereof. 3. Without prejudice to the provisions of Clauses (1) and (2) of this Article, the Cabinet at the suggestion of the Minister shall issue a decision regulating all cases, provisions, conditions, rules, controls, and procedures for imposing the Top-up Tax on Multinational Enterprises and the exemptions therefrom, so that the total percentage of the effective tax imposed on them is (15%) fifteen percent. 3 Chapter Three – Exempt Person

Article 5 – Income Attributable to a Domestic Permanent Establishment or a Foreign Permanent Establishment 1. Income attributable to a Domestic Permanent Establishment or a Foreign Permanent Establishment of the Qualifying Free Zone Person shall be considered Taxable Income and taxed in accordance with paragraph (b) of Clause 2 of Article 3 of the Corporate Tax Law. 2. The income attributable to a Domestic Permanent Establishment or a Foreign Permanent Establishment of the Qualifying Free Zone Person for a Tax Period is the Taxable Income attributable to any such establishment for that period calculated as if the establishment was a separate and independent Person that is a Related Party of the Qualifying Free Zone Person.

7.3. Domestic Permanent Establishment A Domestic Permanent Establishment is a place of Business or other form of taxable presence of a QFZP outside the Free Zone in the UAE.59 Income attributable to a Domestic Permanent Establishment is subject to the 9% Corporate Tax rate (unless the income is Exempt Income) and is disregarded when applying the de minimis requirements. 60 The Domestic Permanent Establishment rules are relevant, for example, in the following scenarios: • A QFZP has its head office in a Free Zone and a branch in the UAE outside the Free Zone wherein the branch may be treated as the Domestic Permanent Establishment. • A QFZP has its head office in the UAE outside a Free Zone and a branch in the Free Zone wherein the head office may be treated as the Domestic Permanent Establishment. Example 34: UAE non-Free Zone head office with a Free Zone Branch Company D was incorporated in 2020 with its head office outside a Free Zone in the UAE. It is subject to standard Corporate Tax rules post introduction of Corporate Tax. In 2027, Company D registered a branch in the Free Zone to perform Qualifying Activities (for example, manufacturing of goods). Company D (i.e. the juridical person) will be treated as a Free Zone Person once the branch is registered in the Free Zone. If Company D satisfies the conditions to be a QFZP, it can benefit from the 0% Corporate Tax rate on its Qualifying Income from the branch in the Free Zone (i.e. Free Zone parent). In this context, Company D’s head office will be the Domestic Permanent Establishment of the QFZP, as a Domestic Permanent Establishment refers to a place of Business or any kind of taxable presence of a QFZP located outside the Free Zone in the UAE (i.e. head office). Income from the Domestic Permanent Establishment (i.e. the head office referred to above) of Company D will be subject to the 9% Corporate Tax rate (subject to any adjustments under the Corporate Tax Law) without the benefit of the 0% Corporate Tax rate on Taxable Income up to AED 375,000. 59 Article 1 of Cabinet Decision 100 of 2023. 60 Article 3(2)(b) of the Corporate Tax Law read with Articles 4(3)(b) and 5(1) of Cabinet Decision No. 100 of 2023. Corporate Tax Guide | Free Zone Persons | CTGFZP1 57