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Qualifying requirements
Both the Free Zone Person and the Intellectual Property must meet certain requirements and conditions for the income to benefit from the application of the 0% CT rate under the FZ regime.
A QFZP may benefit from a 0% Corporate Tax rate on income arising out of Qualifying Intellectual Property, provided there is a direct nexus between the income derived from the Qualifying Intellectual Property and the Qualifying Expenditures that the QFZP incurs to generate that income.
QFPZ requirements
All the following requirements must be met to be considered a QFZP and be subject to the 0% rate on QIP:
- Derives qualifying income from QIP (income from non-qualifying IP will be taxed at 9%)
- Maintains adequate substance in the free zone
- Is compliant with relevant transfer pricing provisions
- Does not elect to be taxed under the UAE CT regime
- Prepares audited financial statements
- Meets the de minimis requirement (non-qualifying income must not exceed 5% of the QFZP’s total revenue or AED5 million, whichever is lower)
What is qualifying IP?
Patents: granted under UAE patent law or in another jurisdiction.
Copyrighted software: any copyright existing in software under UAE copyright law or another jurisdiction.
Other legal rights: rights that are functionally equivalent, similar to patents and subject to a similar approval and registration process. This doesn’t include marketing-related IP such as trademarks.
