Private Clarifications – UAE CT Alert
Background
The FTA published a consolidated set of UAE Corporate Tax Private Clarifications on 9 July 2026, covering rulings issued up to May 2026. The compilation touches a wide sweep of the Corporate Tax Law, from exempt persons, Permanent Establishment and Unincorporated Partnerships, through to Free Zone Qualifying Activities, Participation Exemption, Tax Groups, registration, financial statements and transitional relief.
Private Clarifications are issued by the FTA in response to a specific taxpayer’s request and are binding only on that taxpayer in relation to the facts submitted, unlike Public Clarifications, which apply more broadly. That said, the compilation offers a useful window into the FTA’s thinking on points the legislation itself does not spell out and can guide taxpayers facing similar fact patterns.
This alert provides our selection of the more practically significant clarifications from that compilation, with a short note on what each means. We are also pleased to mention that Fame Advisory has assisted clients in preparing and filing Private Clarification requests with the FTA, and certain favourable outcomes obtained in those cases have been included in the FTA’s compilation and are discussed in this alert.
Permanent Establishment
1. Absence of a trade licence or use of a third party does not rule out a UAE PE. Presence exceeding 6 months (aggregate) in a rolling 12-month period may indicate permanence, if premises are at the enterprise’s disposal and core (non-auxiliary) activities occur there.
What This Means: Not holding a UAE trade licence for the activity is not a defence — the FTA looks past licensing status to substance.
Unincorporated Partnership
2. A landowner-developer arrangement (written or oral) can be an Unincorporated Partnership where parties jointly conduct a development business and share profits.
What This Means: A development agreement dressed up as a simple service arrangement can still be reclassified as a partnership.
3. Failure to submit the annual declaration confirming Foreign Partnership conditions causes loss of tax-transparent treatment.
What This Means: A substantive condition, not routine paperwork.
Family Foundation
4. An LLC/private company investing for individuals is not a Family Foundation merely by purpose. A qualifying “similar entity” needs legal characteristics comparable to a foundation or trust.
What This Means: Purpose alone is insufficient — legal form and governance matter; ordinary corporate vehicles can’t access foundation transparency.
Qualifying Free Zone Persons
5. A QFZP must be a juridical person – a discretionary trust, natural person, Unincorporated Partnership or other non-juridical arrangement cannot qualify.
What This Means: Entity classification must precede the QFZP analysis; Free Zone licensing alone is not enough.
6. A branch has no separate legal identity, so head office and Free Zone branches are one Taxable Person for QFZP assessment — but each activity and its substance must still be tested individually.
What This Means: No standalone QFZP test per location, but every activity and its substance must be mapped and tested separately.
7. A Free Zone Person is not automatically disqualified where a related-party transaction was not recorded at arm’s length, provided an appropriate transfer-pricing adjustment is made in the Corporate Tax Return.
What This Means: A corrective mechanism at filing, not a safe harbour — the adjustment must be supportable and can affect Qualifying Income and de minimis.
Adequate Substance
8. No automatic substance exception for passive/asset-based leasing. A property-leasing Free Zone Person with no employees may fail where no one performs lease administration, compliance, renewals or enforcement.
What This Means: Owning an asset isn’t enough — the FTA looks for people, expenditure and decision-making behind the income.
9. Employees sponsored by Related Parties may count as the Free Zone Person’s qualified full-time employees if it bears their economic cost and controls/supervises the employment relationship.
What This Means: Visa sponsorship isn’t decisive — economic responsibility and day-to-day control matter more.
Adequate Substance (Contd.)
10. A shared workspace can satisfy adequate substance where sufficient and commensurate with the scale of core income-generating activities, alongside adequate people, assets and expenditure.
What This Means: A dedicated office isn’t mandatory, but a nominal flexi-desk may be inadequate for a business with real operations or staff.
11. Overseas warehousing/shipping doesn’t automatically disqualify high-seas or third-port distribution, provided core income-generating activities and substance remain in a Designated Zone.
What This Means: Physical movement of goods isn’t the sole test — what matters is where distribution decisions and CIGA actually happen.
12. A distributor’s customer is the Beneficial Recipient where legal ownership passes and goods are at the customer’s free disposal, including an unrestricted right to resell, with no obligation to do so.
What This Means: Legal title alone isn’t enough — genuine, unrestricted control confirms Beneficial Recipient status and Qualifying Income.
Processing of Goods and Materials
13. Processing is broader than manufacturing — the product doesn’t need to be physically transformed into something new. Simple packaging or re-packaging of goods can itself qualify as “processing,” provided the activity is genuinely carried out in the Free Zone.
What This Means: Don’t assume packaging-type activities fall outside Qualifying Income just because the product itself isn’t changed. But the actual packaging work must physically happen in the Free Zone.
Trading of Qualifying Commodities
14. Buying and selling physical Qualifying Commodities is a Qualifying Activity, but speculative derivative trading (futures, options, swaps) is not, unless the derivatives are used to hedge price risk from the trader’s own physical commodity business, or from related structured commodity financing.
What This Means: A standalone derivatives/proprietary trading desk cannot claim Qualifying Activity status just because the underlying reference is a commodity. The derivatives must be genuinely tied to hedging real physical trading risk — not speculative positions on their own.
Holding of Shares and Securities
15. Selling shares within 12 months of buying them doesn’t automatically disqualify the holding from being treated as an investment. What matters is the original intention, if the shares were genuinely acquired to be held for 12 months or more, an early exit doesn’t break qualification. For discretionary investment portfolios, that intention can be assessed at the level of the overall investment mandate, rather than each individual holding.
What This Means: Actual holding period is evidence, not the sole test — a well-governed mandate can support early disposals driven by risk/market decisions.
Ownership, Management & Operation of Ships
16. Time chartering can qualify without direct ship ownership. Ownership, management and operation are independent limbs, provided functions are substantively carried out by the Free Zone Person.
What This Means: A Free Zone Person can qualify by genuinely operating ships taken on time charter, even if it does not own or manage those ships. Ownership, management and operation are separate qualifying activities.
17. Purchase and sale of ships is not, by itself, the Qualifying Activity of ownership/management/operation — it may be ancillary only where the main qualifying shipping activity is also conducted.
What This Means: A business that only trades ships — buying and selling vessels without a real shipping operation behind it — cannot claim the shipping Qualifying Activity category.
Reinsurance
18. Reinsurance requires the Free Zone Person to assume all or part of the insurance risk undertaken by another insurer or reinsurer.
What This Means: Arrangements without genuine risk transfer do not qualify as reinsurance services.
Wealth and Investment Management Services
19. Commission/referral fees from genuine holistic advisory qualify as wealth-management income; pure execution/brokering doesn’t qualify alone but can be ancillary if genuine wealth management is also carried on.
What This Means: The fee payer need not be the client — what matters is whether the service is strategic management or mere execution.
Headquarter Services to Related Parties
20. Headquarter services include oversight/management of Related Parties — senior management, procurement, planning, risk management, coordination, admin support. One category may suffice, but the company must assume responsibility for the group’s overall success/governance; routine IT or marketing for one entity is generally insufficient.
What This Means: The FTA is looking for real ownership of group performance and governance behind it. A company merely providing routine IT support or marketing to one group entity, without broader strategic responsibility, risks falling outside this Qualifying Activity altogether.
21. Headquarter services may be supplied to only one Related Party where they are nevertheless provided for the wider benefit of the group.
What This Means: The number of recipients isn’t decisive — purpose, scope and group-wide impact matter more than multi-entity invoicing.
22. A Free Zone branch may provide headquarter services to its head office — although the same legal entity, branch and head office are treated as Related Parties for this purpose.
What This Means: A branch providing real HQ functions to its own head office can generate Qualifying Income of headquarter services.
Treasury and Financing Services
23. Loans, payment processing and loan guarantees for Related Parties fall within treasury and financing services, aligning with liquidity, financing, debt, risk and centralised payment functions.
What This Means: Broader than interest-bearing lending — covers central payment and guarantee arrangements, subject to substance and TP requirements.
Distribution in or From a Designated Zone
24. Distribution can qualify where the customer incorporates goods into products later sold to third parties, regardless of processing degree. If the customer retains the product/machine to provide services, it is the end-user and the sale doesn’t qualify.
What This Means: The decisive point is downstream resale versus retained use, not whether goods are transformed.
25. Where raw materials go to a foreign Related Party for manufacture and finished goods are sold outside the UAE without entering the UAE, this is foreign manufacturing, not Designated Zone distribution.
What This Means: Buying raw materials and outsourcing their manufacture abroad is treated as foreign manufacturing, not distribution. Therefore, the income will not qualify merely because the buying and selling are done by a Designated Zone company.
Logistics Services
26. A taxpayer needn’t perform every listed logistics function — it may qualify without directly storing/transporting goods if it performs other qualifying logistics activities.
What This Means: Logistics can cover coordinators, freight forwarders and agency models, not only asset-heavy operators.
27. Using third-party transport/storage providers doesn’t prevent qualification, provided the outsourced activities aren’t the taxpayer’s own core income-generating activities.
What This Means: Outsourcing is fine as long as the taxpayer still performs its CIGA in Free Zone.
Taxable Income
28. Transfer, sale or liquidation of a nominal 1% shareholding is a taxable event, but arm’s-length value may be nominal/book value where the holder has no dividend, liquidation, control or other economic benefit.
What This Means: Legal ownership alone does not necessarily create taxable income. The actual economic rights and benefits attached to the shares must be considered; i.e., substance takes priority over form.
Participation Exemption
29. The FTA treats the Participation Exemption subject-to-tax condition as satisfied for dividends from a Saudi company subject to Zakat, based on Saudi’s corporate-tax framework and 20% rate.
What This Means: Welcome clarity for Saudi investments — but ownership, holding period and asset tests still apply.
30. Dividends from a foreign holding company taxed below 9% may still qualify for participation exemption where its principal activity is holding qualifying interests and prescribed conditions are met.
What This Means: This is a conditional look-through, not a blanket pass — the holding company’s activity, substance, management and income mix all need to be tested and documented before relying on it.
31. For the 5% ownership threshold, interests held by members of a Qualifying Group must be aggregated — aggregation is compulsory.
What This Means: Taxpayers can’t choose stand-alone testing where group aggregation changes the result.
32. Dividends paid from retained earnings generated before the taxpayer acquired the Participation may still qualify, provided all other exemption conditions are met.
What This Means: No need to trace dividends only to post-acquisition profits — removes a common conservative restriction.
33. Beneficial ownership can support a Participating Interest without strict legal title, where the taxpayer controls the interest, has rights to its economic benefits, and it’s treated as equity under applicable accounting standards.
What This Means: The FTA will look through to who genuinely controls the interest and receives its economic benefits.
Registration for Corporate Tax
34. A natural-person Business ceases on the owner’s death and must deregister. If heirs continue the activity as an Unincorporated Partnership, they must appoint an authorised partner and register the partnership.
What This Means: Heirs continuing the business need to actively register a new taxpayer (typically an Unincorporated Partnership) and appoint an authorised partner.
Transitional Relief
35. Transitional relief is capped at the accounting profit attributable to the same property in the relevant Tax Period and cannot create or increase a Tax Loss.
What This Means: Transitional relief can only reduce the profit recognised on that property. It cannot turn the result into a loss or increase an existing loss.
Tax Group
36. A newly incorporated subsidiary may join an existing Tax Group from incorporation, even though its own Tax Period starts later, provided all group conditions are met from incorporation and its financial year aligns with other members.
What This Means: A short first period doesn’t prevent immediate grouping — year-end alignment and day one ownership are what counts.
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