Understanding De Minimis Requirements for 0% Corporate Tax in UAE Free Zones

The concept of "de minimis" is derived from Latin, meaning "about minimal things."

In the context of the UAE's Corporate Tax system, de minimis requirements are used to determine whether a Free Zone Person (FZP) can benefit from a preferential 0% Corporate Tax rate on their Qualifying Income.

These requirements determine whether you can benefit from a 0% corporate tax rate on your qualifying income, which can significantly impact your bottom line.

Key Takeaways

  1. Understanding De Minimis Requirements: Meeting de minimis requirements is essential for Free Zone Persons (FZPs) to benefit from a 0% Corporate Tax rate on qualifying income, significantly impacting their bottom line.

  2. Threshold for Non-Qualifying Revenue: To qualify, non-qualifying revenue should not exceed the lower of AED 5,000,000 or 5% of total revenue, ensuring most revenue comes from qualifying activities.

  3. Importance of Compliance: Compliance with de minimis requirements allows businesses to enjoy substantial tax benefits and avoid being subjected to the standard Corporate Tax rates on all income.


What Are De Minimis Requirements?


In the simplest terms, de minimis requirements help determine if a Free Zone Person (FZP) can benefit from a 0% Corporate Tax rate on their Qualifying Income.

If you meet these requirements, you pay 0% on Qualifying Income and 9% on any income that doesn't qualify. But if you don’t meet them, your entire income could be subject to the standard Corporate Tax rates.
Deminimis Requirement - Corporate Tax - Freezone, UAE

What are the Requirements ? 

The Basics: Meeting the De Minimis Requirements


To qualify, your non-qualifying revenue shouldn't exceed the lower of:
 - AED 5,000,000, or
 - 5% of your total revenue.
Non-qualifying revenue comes from activities or transactions that are outside the intended scope of the Free Zone benefits. This includes:
 - Excluded Activities.
 - Activities with Non-Free Zone Persons that aren't Qualifying Activities.
 - Transactions with Free Zone Persons who aren't the Beneficial Recipient of the services or goods.
Qualfying revenue - Corporate Tax, Freezone UAE

Practical Example 1: TechHub Free Zone Ltd.


Let's start with TechHub Free Zone Ltd., a software development company.

Here’s how their revenue breaks down:
 - AED 8,000,000 from transactions with other Free Zone companies.
 - AED 1,500,000 from transactions with Non-Free Zone companies, but these are Qualifying Activities.
 - AED 300,000 from Excluded Activities within the Free Zone.

Total revenue = AED 9,800,000
Non-qualifying revenue = AED 300,000 (Excluded Activities)

To check if they meet the de minimis requirements:
- 5% of total revenue = 5% of 9,800,000 = AED 490,000

Since AED 300,000 (non-qualifying revenue) is less than AED 490,000 and AED 5,000,000, TechHub Free Zone Ltd. meets the de minimis requirements and can enjoy the 0% Corporate Tax rate on their Qualifying Income.

Step-by-Step Process to Ensure Compliance with De Minimis Requirements

Step-1 Calculate Total Revenue:

Determine the total revenue generated by your company during the tax period. This includes income from all sources.

Step-2 Identify Non-Qualifying Revenue:

Identify revenue generated from activities or transactions that do not qualify for the 0% Corporate Tax rate.

Non-qualifying revenue includes:
 - Excluded Activities
 - Activities with Non-Free Zone Persons that aren't Qualifying Activities
 - Transactions with Free Zone Persons who aren't the Beneficial Recipient of the services or goods

Step-3 Calculate the 5% Threshold:

Calculate 5% of your total revenue to establish one of the de minimis thresholds.
Formula: 5% of Total Revenue = Total Revenue * 0.05

Step-4 Compare Non-Qualifying Revenue to Thresholds:

Compare your non-qualifying revenue to both AED 5,000,000 and the calculated 5% of total revenue.
Determine the lower of these two values.

Step-5 Check Compliance:

Ensure that your non-qualifying revenue does not exceed the lower of AED 5,000,000 or 5% of your total revenue.

Step-6 Consult with Tax Experts:
Engage with tax consultants or experts to verify your calculations and compliance status. They can provide guidance and ensure all requirements are met accurately.
At Fastlane, we're corporate tax experts ready to help you navigate the complexities of tax compliance, including de minimis requirements. We'll ensure you understand your obligations and help optimize your tax strategy to make the most of your Free Zone status.

By following these steps, companies can effectively ensure they meet the de minimis requirements and continue to benefit from the 0% Corporate Tax rate on their qualifying income.



Why Is This Important?
Meeting the de minimis requirements is crucial because it allows your company to take advantage of significant tax benefits. If you slip up, your entire income could be taxed at the standard rate, which could have a huge impact on your bottom line.

Fastlane: Your Corporate Tax Partner
Feeling a bit overwhelmed? Don't worry, that's where we come in. At Fastlane, we're corporate tax experts ready to help you navigate the complexities of tax compliance, including de minimis requirements. We'll ensure you understand your obligations and help optimize your tax strategy to make the most of your Free Zone status.
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