The UAE Tax Case Study. Emirati IP box regime for an embedded income

In October 2023, the UAE retrospectively introduced tax benefits for the ownership and exploitation of intellectual property. Income from patents or software and other qualifying IP assets can be in the scope of the 0% Corporate Tax rate. The regime is guided by the OECD guidelines highlighted in the final BEPS report on Action 5.

The benefit is available not only for purely IP business, but also for businesses that use IP to manufacture products or provide services, generate income from an exploitation of software and other IP in trading, etc. Embedded income (or notional royalties) can also be zero-rated.

In our webinar last week, we dwelled on the uncertainties and complexities that companies may face in when applying these provisions, in particular:

• tools available to allocate incomes to qualifying IP assets,
• differences between scenarios where IP generates income and where it reduces costs,
• the FTA’s interpretation of the embedded income provisions and risks triggered.
  

We used international practices to figure out an appropriate solution. This tool is relevant because these practices stem from the OECD guidelines and reveal the content of common terminology.

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Author: Andrey Nikonov