Ministerial Decision No. 139 of 2023 represents an important milestone in the UAE’s tax landscape, providing clear guidelines on qualifying activities and excluded activities for corporate taxation. The decision, issued by the Minister of State for Financial Affairs, serves to streamline the application of Federal Decree-Law No. 47 of 2022 and ensure consistency in the taxation of corporations and businesses.

With the aim of enhancing transparency, compliance, and efficiency in the tax system, the decision brings much-needed clarity to the classification of activities for taxation purposes in the UAE. It defines the qualifying activities that are subject to corporate tax and outlines the excluded activities that fall outside the scope of taxation. By clearly delineating these categories, the decision helps businesses understand their tax obligations and plan their financial strategies accordingly.

Here are the key points of the decision:

1. Definitions: The decision affirms that the terms and expressions used in the decision have the same meanings as specified in the Corporate Tax Law and a related cabinet decision. It also provides specific definitions for terms such as “ship,” “aircraft,” and “designated zone.”
2. Qualifying Activities: The decision lists various activities that qualify as qualifying activities for tax purposes. These activities include manufacturing of goods or materials, processing of goods or materials, holding of shares and other securities, ownership, management, and operation of ships, reinsurance services, fund management services, wealth and investment management services, headquarters services to related parties, treasury and financing services to related parties, financing and leasing of aircraft, distribution of goods or materials in or from a designated zone, logistics services, and ancillary activities related to the aforementioned activities.
3. Excluded Activities: The decision also identifies activities that are considered excluded activities for corporate taxation. These activities include:

• Transactions with natural persons (except for specific qualifying activities)
• Banking activities
• Insurance activities (except for specific reinsurance services)
• Finance activities
• Leasing activities (except for specific financing and leasing of aircraft)
• Ownership or exploitation of immovable property (except commercial property within a free zone when transacting with other free zone persons)
• Ownership or exploitation of intellectual property assets, and ancillary activities related to the excluded activities.

4. De Minimis Requirements: The decision sets de minimis requirements for non-qualifying revenue. If the non-qualifying revenue derived by a qualifying free zone person in a tax period does not exceed 5% of the total revenue or AED 5,000,000 (whichever is lower), the de minimis requirements are considered satisfied.
5. Other Conditions: In addition to the conditions outlined in the Corporate Tax Law, a qualifying free zone person must meet two additional conditions. Firstly, their non-qualifying revenue must not exceed the de minimis requirements set out in the decision. Secondly, they must prepare audited financial statements in accordance with the requirements set by the Minister for the Corporate Tax Law.
6. Publication and Application: The decision will be published and come into effect on June 1, 2023.

In alignment with the UAE’s commitment to robust regulation and adherence to international standards, the decision references relevant laws and regulations, including the Corporate Tax Law, the Value Added Tax Law, and the Tax Procedures Law. By incorporating these legal frameworks, the decision ensures consistency and coherence in the interpretation and application of tax provisions.

It also ensures compliance with the tax regulations concerning qualifying activities and excluded activities for corporations and businesses in the UAE. By defining these activities and setting specific conditions, it aims to facilitate proper tax assessment and enhance transparency in the taxation system.