De Minimis Requirements and its Significance in Determining Qualified Income Person Under Corporate Tax

3/7/20242 min read

The De Minimis Requirement plays a crucial role in determining the status of a qualifying free zone person under the Corporate Tax (CT) regime in the United Arab Emirates (UAE). Introduced by the Federal Tax Authority (FTA) as part of their guidelines for the application of the new corporate tax law, this requirement sets forth specific criteria that qualifying free zone persons must meet to maintain their status.

In essence, the De Minimis Requirement allows qualifying free zone persons to earn a limited amount of non-qualifying income without jeopardizing their status or the tax regime applicable to them. If the De Minimis Requirement is met, income earned by the person that doesn't fully meet the criteria for qualified income will still be considered qualifying income.

To fulfill the De Minimis Requirement, the following criteria must be satisfied:

The non-qualifying revenue earned by the person should not exceed the lower of the following amounts:

  • AED 500,000

  • 5% of the total revenue

Non-qualifying revenue, as defined under this requirement, encompasses revenue earned from excluded activities or transactions with non-free zone entities. Total revenue refers to all income earned by a qualifying free zone person within a specific tax period.

It's important to note that certain types of revenue are excluded when calculating both non-qualifying revenue and total revenue. These exclusions include revenue related to transactions involving immovable property within free zones, whether commercial or non-commercial, as well as revenue associated with any domestic or foreign Permanent Establishment (PE) of a qualifying free zone person.

In summary, the De Minimis Requirement provides a threshold for the amount of non-qualifying income a qualifying free zone person can earn while still maintaining their status under the CT regime in the UAE. Compliance with this requirement is essential for businesses operating within free zones to navigate the tax implications effectively.

The De minimis requirement criteria, in short, enables the qualifying freezone person to earn a small amount of non-qualifying income without affecting their status.

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