What is the de minimis limit for non-qualifying revenue in a free zone?

Article 3 – De Minimis Requirements For the purposes of Article (4) of Cabinet Decision No. 100 of 2023 referred to above, the de minimis requirements shall be considered satisfied where the non-qualifying Revenue derived by the Qualifying Free Zone Person in a Tax Period does not exceed 5% (five percent) of the total Revenue of the Qualifying Free Zone Person in that Tax Period or AED 5,000,000 (five million dirhams), whichever is lower.

Article 4 – De minimis Requirements 1. The de minimis requirements shall be considered satisfied where the nonqualifying Revenue derived by the Qualifying Free Zone Person in a Tax Period does not exceed a percentage of the total Revenue of the Qualifying Free Zone Person in that Tax Period as specified by the Minister, or an amount specified by the Minister, whichever is lower. 2. Subject to Clause 3 of this Article, the following provisions shall apply: a. Non-qualifying Revenue is Revenue derived in a Tax Period from any of the following: 1) Excluded Activities. 2) Activities that are not Qualifying Activities where the other party to the transaction is a Non-Free Zone Person. 3) Transactions with a Free Zone Person where such Free Zone Person is not the Beneficial Recipient of the relevant services or Goods. b. Total Revenue is all Revenue derived by a Qualifying Free Zone Person in a Tax Period. 3. The following Revenue shall not be included in the calculation of non-qualifying Revenue and total Revenue: a. Revenue derived from the following transactions in relation to immovable property located in a Free Zone: 1) Transactions with a Non-Free Zone Person in respect of Commercial Property. 2) Transactions with any Person in respect of immovable property that is not Commercial Property. b. Revenue attributable to a Domestic Permanent Establishment or a Foreign Permanent Establishment of the Qualifying Free Zone Person. c. Revenue derived from the ownership or exploitation of intellectual property, Cabinet Decision No. 100 of 2023 – As published by Ministry of Finance 4 except for the Revenue related to the Qualifying Income referred to in Clause 1 of Article 7 of this Decision. 4. For the purposes of this Article, a Qualifying Free Zone Person and its Domestic Permanent Establishment or Foreign Permanent Establishment shall be treated as if the establishment was a separate and independent Person that is a Related Party of the Qualifying Free Zone Person.

Article 3 – De Minimis Requirements For the purposes of Article (4) of Cabinet Decision No. 100 of 2023 referred to above, the de minimis requirements shall be considered satisfied where the non-qualifying Revenue derived by the Qualifying Free Zone Person in a Tax Period does not exceed 5% (five percent) of the total Revenue of the Qualifying Free Zone Person in that Tax Period or AED 5,000,000 (five million dirhams), whichever is lower.

For other Revenue sources, the de minimis requirements allow a Free Zone Person to derive an immaterial amount of income from Excluded Activities and non-qualifying sources without affecting its ability to be a QFZP provided the de minimis requirements are satisfied.9 4.4.1. Applying the de minimis requirements The de minimis requirements are satisfied where the non-qualifying Revenue derived by the QFZP in a Tax Period does not exceed the lower of:10 • 5% of the total Revenue of the QFZP in that Tax Period, or • AED 5,000,000. To determine the non-qualifying Revenue and total Revenue to apply the de minimis requirements, the Revenue of a Free Zone Person must be segregated into its components: • total Revenue is all the Revenue that a Free Zone Person derives in Tax Period, less the amount of Revenue that is:11 o attributable to a Foreign Permanent Establishment (see Section 7.2), o attributable to a Domestic Permanent Establishment (see Section 7.3), o derived from Immovable Property located in a Free Zone, other than Commercial Property transactions with Free Zone Persons (see Section 8 for more information on Immovable Property located in a Free Zone), and o derived from the ownership or exploitation of intellectual property, other than Revenue relating to Qualifying Income from Qualifying Intellectual Property (see Section 9 for information on Qualifying Intellectual Property). • non-qualifying Revenue is the Free Zone Person’s Revenue from the following activities/transactions once adjusted for the above exclusions:12 o Excluded Activities, o activities that are not Qualifying Activities where the other party to the transaction is a Non-Free Zone Person, and o transactions with a Free Zone Person where such Free Zone Person is not the Beneficial Recipient of the relevant services or Goods. The Revenue that is attributable to a Foreign Permanent Establishment or Domestic Permanent Establishment is determined by applying the arm’s length principle. 9 Article 3(1)(d) of Cabinet Decision No. 100 of 2023. 10 Article 3 of Ministerial Decision No. 265 of 2023. 11 Articles 3(1) and 4(3) of Cabinet Decision No. 100 of 2023. 12 Article 4(2)(a) of Cabinet Decision No. 100 of 2023. Corporate Tax Guide | Free Zone Persons | CTGFZP1 25