In November 2023, Cabinet Decision No. 100 and Ministerial Decision No. 265 were issued by the UAE Ministry of Finance which established new tax rules in connection with income earned from intellectual property and stock market trading. These decrees aim to regulate the amount of tax to be paid on intellectual property income and to exempt the income earned from trading certain commodities on stock exchanges from taxation.
Qualifying income is the income received in a free economic zone, and is subject to a 0% corporate tax. This will now include income from the ownership and use of qualifying intellectual property, which will be calculated according to the Organization for Economic Cooperation and Development’s (OECD’s) methodology of the modified nexus approach. Income earned from non-qualified intellectual property will be subject to a 9% corporate tax rate.
Following the adoption of Ministerial Decision No. 265 on Qualifying Activities and Excluded Activities, the 0% tax rate will be applied to income received from the physical trading of metals, minerals, energy and agricultural commodities on a recognised stock exchange. Income received from trading derivative instruments for risk hedging will also have a 0% tax levied on it.
The new regulations aim to further clarify the scope of endeavours recognised as ‘qualifying activities and excluded activities’. In turn, this will help companies operating in free economic zones to better navigate the taxation system. Ultimately, these innovations will lead to the increased attractiveness and competitiveness of the UAE free economic zones and cement the UAE’s position as a leading hub for foreign investment and the development of business.