Cabinet and Ministerial Decisions Released on 3 November 2023

Key highlights

The new Decisions have incorporated important additional rules and clarifications for FZ entities. We have summarised some initial insights below:

• Definition of Qualifying Income expanded to include 'Income derived from the ownership or exploitation of Qualifying Intellectual Property’. The inclusion of this definition seems to be targeted for companies who generate income from intellectual property but not trademark royalty, and actually carry out research and development themselves or via 3rd parties.

• Definition of Qualifying Activities expanded to include ‘Trading of Qualifying Commodities’, meaning the physical trading activities of Qualifying Commodities and associated derivative trading. Commodities must be traded on a commodity exchange. This activity can be carried out at any FZ approved for CT, not just Designated Zones.

• For the purposes of FZ substance requirements, core income-generating activities (that are to be undertaken in the FZ) were explained to mainly consist of those significant functions that drive the business value for each activity carried out by a QFZP and are not exclusively or mostly support activities.

• The Qualifying Activity of 'Holding of shares and other securities' was changed to 'Holding of shares and other securities for investment purposes'. The Decision clarifies that investment purposes means holding for an uninterrupted period of at least 12 months.

• The meaning of 'Headquarter Services to Related Parties' explained to include the administering, overseeing and managing of Business Activities of Related Parties, including the provision of senior and general management, captive insurance services, administrative services, procurement services, business planning and development, risk management, coordination of group activities, and in general incurring expenditures on behalf of Related Parties and providing other support services to Related Parties.

• The meaning of ‘Ownership, management and operation of Ships’ explained to also include towing activities and the provision of general assistance to Ships at sea, dredging activities at sea.

• Reference to 'incidental' income as part of Qualifying Income removed. 'Ancillary' activity being part of a Qualifying or Excluded Activity defined as an activity where it serves no independent function but is necessary for the performance of the main Activity.

• Other Qualifying Activities were also explained, in line with the Public Consultation Document issued in July 2023.

Next steps

As this legislation is fresh off the press, we are in the process of analyzing its implications and gaining a comprehensive understanding of its provisions. Our team is working to gather all the necessary information, interpret the changes, and assess their impact.

If you have any urgent questions or concerns related to this new legislation, please do not hesitate to reach out to your PWC UAE CT team contact or via CT.UAE@pwc.com. Our team is ready to assist you.

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