In July, the FTA released the Summary of FTA Private Clarifications, a collection of anonymized positions formulated earlier in response to requests from specific taxpayers. The document does not have the force of law and does not create universal rules: each particular explanation applies only to the applicant, the specific issue and the facts presented. The value of the publication lies elsewhere — for the first time, the mechanism of applying corporate tax legislation to real situations and the list of facts that the FTA considers essential are visible.
For qualified free zone companies (QFZP), meeting the substance requirements remains a prerequisite for applying the 0% rate. The summary of explanations shows that the FTA does not adopt either a formally minimalistic or formally redundant approach.
The first illustrative case is a company that rents out property and does not have a single employee. The taxpayer believed that passive activity exempted from the requirement to keep staff. The FTA did not agree with this: even the lease of property involves performing the functions of contract administration, monitoring their execution and renewal. The complete absence of employees may indicate insufficient substance, regardless of the nature of the activity.
The second case demonstrates the opposite. The employee is taken into account when assessing substance, even if his visa is issued to a related company. The FTA defines two criteria as defining: who really controls the employee's work and who bears the corresponding economic costs. A similar logic applies to an office: a common room by itself does not deprive a company of the opportunity to pass the test if the area and equipment correspond to the scale and nature of the activity.
The practical conclusion from the summary is straightforward: substance cannot be reduced to the formula "two visas plus a separate office." It is necessary to compare the actual functions of the company with the people, facilities and expenses that ensure their implementation.
For owners of structures in the UAE free zones, who use them, among other things, for settlements under foreign trade contracts, the publication of the summary means increased predictability of tax control. Before submitting a second corporate tax return, it is advisable for companies to conduct an internal audit: to record which functions are performed in the UAE, by whom and at the expense of which resources — regardless of which legal entity visas and lease agreements are issued.
