FTA Releases Guide on Free Zone Persons

FTA Releases Guide on Free Zone Persons
FTA Releases Guide on Free Zone Persons

The Federal Tax Authority (FTA) has finally released the much-awaited Corporate Tax (CT) guide for Free Zone entities on May 20, 2024.

This guide offers comprehensive guidance and clarity on various technical aspects for entities conducting business in a Free Zone in the UAE. It is designed to be read alongside the relevant articles of the UAE Corporate Tax Law, implementing decisions, and other guidance published by the FTA.

Synopsis of Business Restructuring Relief Guide

Synopsis of Business Restructuring Relief Guide

The Corporate Tax Law includes provisions to eliminates the corporate tax implications of specific transactions involved in business restructuring or reorganization. Typically, such transactions like mergers or demergers could trigger taxable gains or losses, even without a change in ultimate ownership or if the original owners maintain a stake in the restructured entity. To facilitate restructuring for valid commercial reasons, Business Restructuring Relief under Article 27 of the Corporate Tax Law enables certain restructuring transactions to occur without tax consequences. However, this relief is contingent upon meeting specified conditions and requires the Transferor to elect for its application. 

BR Relief is specifically applicable in two scenarios: – 

1. One of the conditions for Business Restructuring Relief on the transfer of a Business or an independent part of a Business is that the consideration for the transfer is to be received by the Transferor. .

2. If payment in forms other than shares or ownership interests, like cash, is made, the transfer remains eligible for Business Restructuring Relief provided that the Market Value of this alternative consideration does not exceed the lower of the following-  

For the relief to apply, all criteria must be met:

Note: There is no condition in respect of the ownership of the Transferor or the Transferee. Thus, the relief covers Business restructuring transactions where a Business is transferred from one Related Party to another and also where the Business restructuring is between third parties.

Where a Business or independent part of a Business is transferred on a no gain or loss basis, any unutilised Tax Losses incurred by the Transferor in Tax Periods before the restructuring transaction, can be carried forward and are considered as Tax Losses of the Transferee, provided the Transferee continues to conduct the same or a similar Business or Business Activity as the Transferor conducted before the restructuring transaction. 

Highlight of PCD on R&D incentive

Highlight of PCD on R&D Incentive
Highlight of PCD on R&D Incentive

Alongside the consultation questionnaire, a separate Guidance Paper has been prepared which provides details on the internationally recognized definition of R&D provided in the Organization for Economic Co-operation and Development’s (‘OECD’) Frascati Manual. 

Overall, the R&D tax incentive seeks to aid the private sector by reducing the effective cost associated with conducting research and development, with the goal of making it accessible to a broad array of businesses in the UAE. Stakeholders are urged to offer concise and transparent feedback by May 14, 2024.

Synopsis of Qualifying Group Relief Guide for UAE

1. Transferor and Transferee are Juridical Persons such as such as private or public joint stock companies or limited liability companies and incorporated partnerships.

2. Transferor and Transferee are Taxable Persons. 

3. Transferor or Transferee must hold at least 75% direct, indirect or common ownership interest in the other party, or a third person (not necessarily a taxable person) must hold at least 75% ownership interest in both Juridical Taxable Persons (“Ownership Test”).

4. Neither the Transferor or Transferee is an exempt person or a Qualifying free zone person.

5. Transferor and Transferee have the same financial year end and must prepare financial statements based on same accounting standards.

Note: Where the Transferor and Transferee elect to apply the QG Relief, they must remain members of the same QG for a period of two years from the date of the transfer in order to avoid a clawback of QG relief. Thus, each of the above conditions must be met throughout the relevant two-year period.

However, the claw back is not triggered if the subsequent transfer of the asset or liability is within the Qualifying Group or if the new Transferee joins the Qualifying Group before the transfer of the asset or liability. 

FTA Decision No-3 of 2024-Timeline for CT Registration of Taxable Persons

FTA Decision No-3 of 2024-Timeline for CT Registration of Taxable Persons
FTA Decision No-3 of 2024-Timeline for CT Registration of Taxable Persons

VATP036: Public Clarification on SWIFT Messages


Spain draft legislation includes the Income Inclusion Rule and a Qualified Domestic Minimum Top-up Tax (QDMTT) applicable for fiscal years starting on or after 31 December 2023, as well as an Undertaxed Profits Rule (UTPR) generally applicable for fiscal years starting on or after 31 December 2024. In addition, the draft legislation contains a Transitional CBCR Safe Harbor, a Safe Harbor for QDMTT and a Transitional UTPR Safe Harbor. The draft bill was subject to public consultation until 19 January 2024.

Current Practice

Receipt of concerned Services;

As a taxable person, the financial institution is regarded as making a taxable supply to itself when it imports such concerned service and is responsible for all applicable VAT obligations and accounting for VAT on the service.

Then, the financial institution is required to issue a valid tax invoice to itself as the recipient of the supply concerning each SWIFT transaction for which it incurs interbank charges.

Issue with Current Practice

Administrative burden to issue tax invoices to itself for a high number of SWIFT-related concerned services; impracticality for financial institutions to issue tax invoices in respect of international bank charges incurred from non-resident banking institutions as a result of using the SWIFT communication system with these non-resident banks.

Welcome Clarification

Financial institutions are not obligated to issue a tax invoice to themselves for interbank services received from non-resident banks if the necessary information is contained within the SWIFT message (Qualifying SWIFT Message) to establish the particulars of the supply.

For purposes of input tax recovery, considering the nature of the Qualifying SWIFT message, it is accepted as sufficient documentary evidence to support the recovery of input tax that relates to this specific imported service. The recovery of input tax is subject to the other standard VAT recovery rules.

What’s SWIFT Charges? How did it become taxable?

Financial institutions incur international bank charges from banking institutions outside the UAE due to using the Society for Worldwide Interbank Financial Telecommunications (“SWIFT”) communication system with these non-resident banks.

The provision of the right to use the SWIFT communication service constitutes a service for VAT purposes.

If this service is received by a financial institution that is a resident of the UAE, according to the general place of supply rule, the place of supply is in the UAE.

Consequently, where such service is received from outside the UAE, it constitutes a concerned service for UAE VAT purposes.

Download VAT036 Public Clarification on SWIFT  

Corporate Tax Guide on Registration of Natural Persons




On 29 December 2023, FTA issued the Corporate Tax Guide, which provides general guidance on Registration of Natural Persons for Corporate Tax purposes. The key highlights are as follows-

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