What happens if a free zone company fails the qualifying conditions?

Article 18 – Qualifying Free Zone Person 1. A Qualifying Free Zone Person is a Free Zone Person that meets all of the following conditions: a. Maintains adequate substance in the State. b. Derives Qualifying Income as specified in a decision issued by the Cabinet at the suggestion of the Minister. c. Has not elected to be subject to Corporate Tax under Article 19 of this DecreeLaw. d. Complies with Articles 34 and 55 of this Decree-Law. e. Meets any other conditions as may be prescribed by the Minister. 2. A Qualifying Free Zone Person that fails to meet any of the conditions under Clause 1 of this Article at any particular time during a Tax Period shall cease to be a Qualifying Free Zone Person from the beginning of that Tax Period. 3. Notwithstanding Clause 2 of this Article, the Minister may prescribe the conditions or circumstances under which a Person may continue to be a Qualifying Free Zone Person, or cease to be a Qualifying Free Zone Person from a different date. 4. The application of paragraph (a) of Clause 2 of Article 3 of this Decree-Law to a Qualifying Free Zone Person shall apply for the remainder of the tax incentive Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 25 period stipulated in the applicable legislation of the Free Zone in which the Qualifying Free Zone Person is registered, which period may be extended in accordance with any conditions as may be determined in a decision issued by the Cabinet at the suggestion of the Minister, but any one period shall not exceed (50) fifty years.

Article 5 - Other Conditions 1. In addition to the conditions set out in Clause (1) of Article (18) of the Corporate Tax Law, a Qualifying Free Zone Person must meet the following two conditions: Ministerial Decision No. 229 of 2025 – As published by the Ministry of Finance 11 a. Its non-qualifying Revenue does not exceed the de minimis requirements set out in Article (3) of this Decision. b. It prepares audited financial statements in accordance with Ministerial Decision No. 84 of 2025 referred to above and any decision that amends or replaces it. 2. A Qualifying Free Zone Person that at any particular time during a Tax Period fails to meet any of the conditions set out in Clause (1) of Article (18) of the Corporate Tax Law and this Decision and any other conditions prescribed by the Minister shall cease to be a Qualifying Free Zone Person from the beginning of the relevant Tax Period and for the subsequent (4) four Tax Periods.

o 5.5.6. Transactions with any Persons in respect of Immovable Property that is not Commercial Property located in a Free Zone.65 Election to be taxed at the general rates of Corporate Tax A Qualifying Free Zone Person can elect to be taxed at the general rates of Corporate Tax.66 The election will be effective from either the commencement of the Tax Period in which the election is made, or the commencement of the following Tax Period and for the following four Tax Periods, after which the election can be made again.67 In addition, if a Qualifying Free Zone Person fails to meet any of the conditions above at any particular time during a Tax Period, it will cease to be eligible for the 0% Corporate Tax rate from the beginning of that Tax Period and will be taxed at the general rates of Corporate Tax for five Tax Periods starting with the Tax Period in which the conditions have not been met.68 A Free Zone Person that makes an election to be taxed at the general rates of Corporate Tax will cease to be, or not become, a Qualifying Free Zone Person, as they no longer satisfy the conditions. As a result, restrictions from applying certain provisions of the Corporate Tax Law will no longer apply. This means, for example, that the Free Zone Person can become a member of a Tax Group or elect for the small business relief subject to meeting the relevant conditions. Example 3: Excluded Activity E LLC is a Free Zone Person, and generates all of its income from leasing a property which is not located in a Free Zone. As this is Revenue from an Excluded Activity, this income is not Qualifying Income. As E LLC only earns non-qualifying Revenue, it will not satisfy the de minimis requirement and, therefore, will not be considered a Qualifying Free Zone Person. 65 Article 4(3)(a)(2) of Cabinet Decision No. 55 of 2023. 66 Article 19(1) of the Corporate Tax Law. 67 Articles 18(1)(c) of the Corporate Tax Law and Article 5(2) of Ministerial Decision No. 139 of 2023. 68 Article 18(2) of the Corporate Tax Law and Article 5(2) of Ministerial Decision No. 139 of 2023. General Corporate Tax Guide | Corporate Tax | CTGGCT1 36