A company in a UAE Free Zone can qualify as a Qualifying Free Zone Person (QFZP) if it meets the following conditions:

• Maintains adequate substance in the Free Zone – The company must have sufficient business presence and operations.
• Derives Qualifying Income – The company must earn income from approved Qualifying Activities.
• Complies with Transfer Pricing rules – Transactions must be conducted at arm’s length with related parties.
• Meets the de minimis requirements – A limited percentage of income can come from Non-Free Zone Persons or Excluded Activities.
  
  

If a QFZP does not meet these conditions, it will be subject to the 9% Corporate Tax rate on its total taxable income.

Immovable Property refers to:

• Any area of land over which rights or interests or services can be created.
• Any building, structure, or engineering work permanently attached to the land or seabed.
• Any fixture or equipment that is a permanent part of the land or attached to a building or structure.

Immovable Property is fixed in place and cannot be moved without deterioration or alteration. On the other hand, temporary structures like construction sites do not qualify as Immovable Property.

Commercial Property is a type of Immovable Property used exclusively for Business or Business Activities. It excludes residential or accommodation-related properties such as hotels, serviced apartments, and motels.

For a Qualifying Free Zone Person (QFZP), income from Immovable Property in a Free Zone is treated as follows:

• Income from Commercial Property transactions with a Free Zone Person (who is the Beneficial Recipient) is Qualifying Income and is not taxable.
• Income from Commercial Property transactions with a Free Zone Person (who is not the Beneficial Recipient) is not Qualifying Income and is taxed at 9% Corporate Tax. This income is excluded when calculating total revenue and non-qualifying revenue for the de minimis requirement.
• Income from other Immovable Property in a Free Zone is also not Qualifying Income and is taxed at 9%, while being disregarded for de minimis calculations.

A mixed-use property in a Free Zone may generate both Qualifying and non-Qualifying Income, depending on its use:

• Retail or commercial spaces rented to Free Zone Persons generate Qualifying Income (0% tax).
• Residential spaces or accommodations generate non-Qualifying Income (9% tax).

For proper tax reporting, companies must allocate revenue based on direct allocation, land registry records, or property values to ensure an arm’s length allocation.

In the Corporate Tax Return, companies are asked: “Does the Free Zone Person derive Revenue from immovable property located in a Free Zone that is not Commercial Property?”

If Yes is selected, the revenue from such property is excluded from the de minimis calculation and is subject to 9% Corporate Tax.

Company E, a QFZP, owns a commercial property in a Free Zone and reports total revenue of AED 50,000,000:

• AED 1,000,000 comes from transactions with Non-Free Zone Persons in respect of Commercial Property located in a Free Zone.
• AED 49,000,000 is considered for the de minimis requirement.
  
  

For tax purposes:

• Revenue from Free Zone Persons in respect of Commercial Property is Qualifying Income (0% tax).
• Revenue from Non-Free Zone Persons in respect of Commercial Property is not Qualifying Income (9% tax).
  
  

If the company owns Immovable Property in a Free Zone that is not Commercial Property, this revenue is excluded from the de minimis calculation and taxed at 9% Corporate Tax.

Income from Immovable Property located outside a Free Zone is considered an Excluded Activity and is included when applying the de minimis requirements. However, if the income is attributable to a Foreign or Domestic Permanent Establishment, it follows separate tax rules.

Navigating Corporate Tax regulations for Immovable Property in the UAE can be complex. Fastlane Consultancy provides expertise in:

• Corporate Tax Compliance – Ensuring your company meets QFZP conditions.
• Tax Planning & Optimization – Helping structure operations to minimize tax liabilities.
• Financial Reporting & Corporate Tax Return Filing – Ensuring compliance with Free Zone and Corporate Tax regulations.
  
  

With Fastlane, you can focus on business growth while we handle your corporate tax obligations. Contact us today for a free consultation to ensure compliance with UAE tax laws.