Which activities are excluded activities for free zone companies?

Example 92: Leasing Company J (a Free Zone Person) is a regulated lessor. Company J enters into a hire purchase agreement under which it leases a forklift to a lessee for consideration (irrespective of the location of the lessee). The transaction is illustrated in the following diagram. Income from Excluded Activity: Rental payments Lessee (Free Zone, UAE or Foreign) Company J (lessor) (Free Zone) Hire purchase agreement The rental income derived from the leasing activity is considered income from an Excluded Activity. Example 93: Financing Company K (a Free Zone Person) is a regulated non-bank lender. Company K makes a loan to a borrower that is not a Related Party and earns Interest on the loan (irrespective of the location of the borrower). The transaction is illustrated in the following diagram. Income from Excluded Activity: Interest Borrower (Free Zone, UAE or Foreign) Company K (Free Zone) Loan agreement The Interest income is considered income derived from an Excluded Activity because it related to a regulated Business. 11.6. Ownership or exploitation of Immovable Property The ownership or exploitation of Immovable Property, other than Commercial Property located in a Free Zone where the transaction in respect of such Commercial Property is conducted with other Free Zone Persons, is an Excluded Activity. 130 Section 8 discusses the treatment of Immovable Property and the implications of the ownership or exploitation of most Immovable Property being an Excluded Activity. 130 Article 2(2)(e) of Ministerial Decision No. 265 of 2023. Corporate Tax Guide | Free Zone Persons | CTGFZP1 131

FREE ZONE PERSONS BASIC TAX INFORMATION BULLETIN 9. What are the Excluded Activities under the provisions related to Free Zones for Corporate Tax purposes? 10. What are the compliance requirements for a Free Zone Person under the Corporate Tax Law? Income from Excluded Activities conducted by a Qualifying Free Zone Person is not eligible for the 0% Corporate Tax rate under the UAE Corporate Tax Law (even if transactions in respect of such Excluded Activities are conducted with other Free Zone Persons) and is subject to the 9% Corporate Tax rate. The following activities are Excluded Activities: The compliance requirements for Corporate Tax purposes applicable to a Free Zone Person include, but are not limited to, the following: - - Tax Registration: A Free Zone Person, including a Qualifying Free Zone Person, should register for Corporate Tax with the Federal Tax Authority (FTA) in the form and manner and within the timelines prescribed by the FTA in the FTA Decision No. 3 of 2024. Failure to submit a Tax Registration application as per the prescribed timelines will result in Administrative Penalties. - Audited Financial Statements: A Qualifying Free Zone Person must prepare and maintain audited Financial Statements even if its Revenue is below AED 50 million during the relevant Tax Period. A Qualifying Free Zone Person is not required to prepare separate Financial Statements for its Qualifying Income and its other income. However, it should have sufficient documentation to demonstrate how it calculated its Qualifying Income. - Tax Return and Corporate Tax payment: A Free Zone Person, including a Qualifying Free Zone Person, is required to pay Corporate Tax (if any) and file their Tax Return to the FTA in the form and manner prescribed by the FTA within 9 months from the end of the relevant Tax Period. - Maintaining records and documents: A Free Zone Person shall maintain all records and documents for a period of 7 years following the end of the Tax Period to which they relate. any transactions with natural persons, except transactions in relation to: ▪ ownership, management and operation of Ships ▪ fund management services that are subject to the regulatory oversight of the Competent Authority in the UAE ▪ wealth and investment management services that are subject to the regulatory oversight of the Competent Authority in the UAE ▪ financing and leasing of Aircraft, including engines and rotable components - banking activities - insurance activities, other than reinsurance activities, and captive insurance related activities forming part of headquarter services to Related Parties - finance and leasing activities, transactions in relation to: other than ▪ ownership, management and operation of Ships ▪ treasury and financing services to Related Parties ▪ financing and leasing of Aircraft, including engines and rotable components - ownership or exploitation of Immovable Property, other than Commercial Property located in a Free Zone where the transaction in respect of such Commercial Property is conducted with other Free Zone Persons Excluded Activities also include ancillary activities. An activity is ancillary where it is necessary for the performance of the main Excluded Activity or it makes a minor contribution to the main Excluded Activity and is so closely related to the main Excluded Activity that it should not be seen as a separate activity.

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.