Transfer Pricing for UAE Free Zone Entities: Arm’s Length and Documentation
Businesses encounter transfer pricing policies in guides by the Federal Decree-Law No. 47/2022 (otherwise known…
The De Minimis Rule Explained
Under the corporate tax law, a qualifying free zone person qualifies as long as non-qualifying revenue do not go beyond AED 5 million or 5% of total revenue, whichever is lower. As an example, assume a QFZP earns this much in the current tax period.
If total revenue is calculated at AED 20,000,000, then the fixed cap would either be AED 1,000,000 (5% of AED 20m) or AED 5,000,000.
In this case, since the AED 1 million is lower, this becomes the threshold amount.
- If the non qualifying revenue is at, say, AED 800,000, then the threshold is not breached and QFZP status is preserved.
- However, if it exceeds at AED 1,000,001, QFZP status is lost and the company will be taxed under corporate tax rules during this period. The loss applies from the beginning of the taxation period and the following four taxable periods.
The company may also elect to join a tax group, if the ownership requirement is met.
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