The UAE Tax Case Study. Ancillary and Main Activity: how to distinguish between them and why?

The FTA’s Free Zone Persons Guide provides substantial input in obtaining clarity. However, some clarifications requires further details. Specifically, the Guide addresses how to distinguish between a main Qualifying Activity from ancillary one. And that is where the Guide brings in more confusion than clarity, in my view.

But firstly, why does the distinction matter? Both main activity and ancillary one are qualifying for 0% Corporate Tax rate. So why bother? In our recent webinar, we explained the rationale using the third slide (lower left corner):

• Support functions that are part of a main activity may be performed anywhere.
• If a support function is considered an ancillary activity, its core function must be confined within a free zone. Conversely, no localization is needed if the support function is part of a main activity

The confusion may ensue from the FTA’s description of features of main and ancillary activities:

• Both bear natural and integral attributes (see 2^nd slide). The only difference is that to be main activity an operation must be natural and integral ‘part’ of the main activity and to be ancillary activity an operation shall be natural and integral ‘compliment’ of the main activity.
• The Cabinet has included support functions for core operations in the main activity description, but they are also embedded in the description of ancillary activities (see 3rd slide).

Obvious disclaimer: These interpretations are my personal opinions and are not official or endorsed by any competent authority.

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