Page 9 - ICAI UAE TAX UPDATE_MAY 2024

Excluded Activities transactions are not with any Related Parties and
Connected Persons or FZP’s domestic or foreign parent
Transactions with Natural Persons: All transactions entity, then it is not required to comply with this principle
with natural persons are treated as Excluded Activities, and transfer pricing rules do not apply.
except transactions in relation to the ownership,
management and operation of Ships, fund management This means that the FZP must earn and record operating
services, wealth and investment management services, profits or losses at arm’s length, determined in accordance
and financing and leasing of Aircraft. with internationally accepted profit attribution methods
such as the separate entity approach, taking into account
Banking Activities: Banking activities means the the functions performed, assets used, and risks assumed
regulated financial activities specified under Article 65 through the FZP and through its Foreign or Domestic PE.
of Federal Decree-Law No. 14 of 2018.
This requires the maintenance of Transfer Pricing
Banking activities do not include fund management documentation to demonstrate the arm’s length nature
services, wealth and investment management services or of the relevant transactions and the preparation of a
treasury and financing services to Related Parties if they master file, local file, and disclosure form for the FZP
constitute a separate and distinct Business performed as a whole if the relevant Transfer Pricing compliance
by a Free Zone Person. If a Free Zone Person engaged thresholds are met.
in banking activities performs any of these services,
the same could be treated as Qualifying Activities but it The Transfer Pricing documentation compliance is
would need to satisfy the de minimis requirements. required and is based on the turnover of FZP in the UAE
above AED 200 million and group turnover above AED
Insurance Activities: Insurance activities means 3.15 million.
insurance operations that are regulated under Federal
Law No. 6 of 2007. Income from Qualifying Intellectual Property (QIP)

This includes activities that are subject to regulatory To benefit from the 0% rate on QI from QIP, a QFZP must
oversight, such as, the Business of accepting risks by be able to demonstrate a nexus between Qualifying
effecting or carrying out contracts of insurance, in both expenditure and income from QIP. In such cases, a QFZP
the life and non-life sectors. Insurance activities do not must set up an appropriate tracking system to avail the
include reinsurance activities. benefit.

Financing and leasing activities: Financing and leasing While calculating the QI from Intellectual Property, the
activities means the provision of credit or financing sum of Qualifying expenditure and Uplift expenditure
for digital currency or cryptocurrency or any kind of shall be lower of 130% of Qualifying Expenditure or
consideration. Overall Expenditures.
Regulatory oversight of the relevant Competent The nexus approach involves a cumulative ratio of
Authority includes the Central Bank of the United Arab Qualifying Expenditures and Overall Expenditures for
Emirates, the Dubai Financial Services Authority of tracking expenses related to QIP. QFZPs can derive QI
the Dubai International Financial Centre, the Financial from Intellectual Property created or under development
Services Regulatory Authority of the Abu Dhabi Global before the CT Law, provided they can track historic
Market and the Securities and Commodities Authority expenditures. For the first three Tax Periods, QFZPs may
as applicable in the UAE. use a three-year rolling average ratio before transitioning
to a cumulative ratio in the fourth Tax Period.
Ownership or exploitation of Immovable Property: The
ownership or exploitation of Immovable Property, other Compliances for QFZP
than Commercial Property located in a Free Zone where
the transaction in respect of such Commercial Property is A QFZP is not required to prepare separate Audited FS
conducted with other Free Zone Persons, is an Excluded for its QI and its other income and should have sufficient
Activity documentation to demonstrate the calculation of QI.

Transfer Pricing for QFZP A QFZP is not required to prepare separate FS for any of
its branches.
Where a FZP is having qualifying business activities
or transactions with another FZP or non-FZP and the For full FTA Guide, refer to - https://bit.ly/3VknWzP

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UA E TAX UPD ATE NEWSLET TER ISSUE 02 - May 2024 ISSUE 02 - May 2024 UA E TAX U PDAT E NEWSLET TER