Ancillary Activities to Natural Persons: Qualifying or not

Facts

ABC FZCO (“ABC”) is a Free Zone company licensed in the United Arab Emirates (UAE) and is engaged in the provision of both core and ancillary shipping services to a mixed clientele comprising both juridical persons and natural persons.

Its core operations include:

• Chartering and operating ships engaged in the international transportation of goods;
• Technical and commercial management of vessels;
• Crewing, bunkering, navigation assistance, and voyage planning.

These activities fall within Article 2(1)(e) of Ministerial Decision No. 265 of 27 October 2023, which classifies the “ownership, management and operation of Ships” as a Qualifying Activity.

In addition to its core services, ABC performs a number of ancillary activities that are operationally and commercially linked to its core services/ main activities. These services fall within the scope of Article 2(1)(n) of Ministerial Decision No. 265/2023 and include:

• Leasing of maritime equipment;
• Organising and overseeing voyages;
• Facilitation of insurance arrangements and marine permits.

All these ancillary activities are revenue-generating and offered as part of ABC’s broader shipping service offerings. Both the core activities under Article 2(1)(e) of the Ministerial Decision No. 265/2023 and the ancillary activities under Article 2(1)(n) of this Decision are provided to juridical persons as well as natural persons.

ABC seeks to apply the 0% Corporate Tax rate available to Qualifying Free Zone Persons (QFZPs) to income arising from both its core and ancillary services. However, Article 2(1)(n), which covers ancillary activities, is not among the specific categories of Qualifying Activities that are excepted from the general exclusion for transactions with natural persons given in Article 2(2)(a).

Question

Whether the ancillary activities performed by ABC for natural persons are excluded from the scope of Qualifying Activities under Article 2(2)(a) of the Ministerial Decision No. 265/2023?

Summary

Upon examination of the applicable accounting and tax standards, we concluded that:

1. Article 2(2)(a) of the Ministerial Decision No. 265/2023 excludes transactions with natural persons from the scope of Qualifying Activities, except where the transaction relates to activities listed under paragraphs (e), (g), (h), and (k) of Clause (1) of Article 2. ABC’s main services falling under Article 2(1)(e) are expressly excepted from this exclusion and therefore remain Qualifying Activities, even when provided to natural persons.
2. The issue arises with respect to ancillary activities under Article 2(1)(n), which are not listed among the exceptions in Article 2(2)(a). On a literal reading, this might suggest that such services are excluded when provided to natural persons.
3. However, there is a strong legal basis to conclude that these ancillary activities. The supporting arguments are presented in the analysis below.
4. Nonetheless, since the legislation does not expressly address the treatment of ancillary services to natural persons, there remains a reasonable risk of a contrary interpretation by the FTA. Therefore, it is advisable to seek verification of the above position through a private clarification with the FTA. When doing so, the taxpayer must present a favorable tax position, propose alternatives (where applicable), and provide a detailed analysis of these positions. A relevant tax opinion should also be submitted. The arguments outlined below can support a favorable interpretation, but additional arguments tailored to the specific facts of each case should be thoroughly developed and included in the technical position.

Analysis

Article 2(2)(a) of the Ministerial Decision No. 265/2023 provides that ‘any transactions with natural persons, except transactions in relation to the Qualifying Activities specified under paragraphs (e), (g), (h), and (k) of Clause (1) of this Article, shall be excluded from the scope of Qualifying Activities’. In other words, as a general rule, transactions with natural persons are excluded from being considered Qualifying Activities, unless they fall within one of the specified exceptions. These exceptions currently include:

• Article 2(1)(e) – Ownership, management and operation of Ships;
• Article 2(1)(g) – Fund management services;
• Article 2(1)(h) – Wealth and investment management services;
• Article 2(1)(k) – Financing and leasing of Aircrafts.

Article 2(1)(n), which covers ancillary activities to any of the qualifying activities listed in paragraphs (a) to (m), is not included in the list of exceptions.

This gives rise to a literal/ strict interpretive concern: if ancillary services are provided to natural persons, do they automatically fall outside the scope of Qualifying Activities because Article 2(1)(n) is not mentioned in Article 2(2)(a), even when they support a main activity that is not excluded under Article 2(2)(a)?

The arguments below support the position that, despite the omission, ancillary activities directly connected to a permitted activity (such as activities under Article 2(1)(e)) should still qualify.

Main Activity provided to natural persons is excepted under Article 2(2)(a) and is a Qualifying Activity

ABC’s main shipping activities falling under Article 2(1)(e) remain Qualifying Activities even when provided to natural persons, due to the express exception provided under Article 2(2)(a). This ensures the applicability of the 0% Corporate Tax rate to income from such activities, regardless of the recipient’s legal status i.e. whether they are a juridical person or a natural person.

Interdependence of Article 2(1)(n) with Articles 2(1)(a)–(m)

Article 2(1)(n) cannot be read in isolation. By its very language, it is explicitly dependent on the activities listed in paragraphs (a) to (m) of Article 2(1). It states: ‘Any activities that are ancillary to the Qualifying Activities specified in paragraphs (a) to (m) of this Clause’.

This makes it clear that the scope of Article 2(1)(n) is derivative and must always be interpreted in conjunction with the primary Qualifying Activity to which it relates. In the present case, Article 2(1)(e) identifies ownership, management and operation of ships as a Qualifying Activity. Therefore, any activity that is ancillary to services falling within Article 2(1)(e) should also qualify under Article 2(1)(n), provided it meets the ancillary test.

Further, Article 2(2)(a) clarifies that services under Article 2(1)(e) are not excluded from the definition of Qualifying Activities merely because they are provided to natural persons. It logically follows that if the main activity (Article 2(1)(e)) remains a Qualifying Activity even when provided to natural persons, then ancillary activities directly connected to that main activity, as covered under Article 2(1)(n), should also retain their character as Qualifying Activities in such cases.

This interpretation is consistent with the structure and intent of Article 2 and avoids treating directly connected components of the same service differently without justification.

Article 2(2)(f) confirms favourable interpretation

Article 2(2)(a) of the Ministerial Decision No. 265/2023 excludes transactions with natural persons from being treated as Qualifying Activities, except where the transaction relates to one of four specifically listed activities: Article 2(1)(e), (g), (h), or (k). For instance, ownership, management or operation of ships under Article 2(1)(e) is not excluded when provided to natural persons.

However, Article 2(2)(a) makes no reference to ancillary activities. It excludes only the main activity itself, not supporting services under Article 2(1)(n). This is significant because the Minister explicitly addresses ancillary activities in Article 2(2)(f). It states: ‘Any activities that are ancillary to the Excluded Activities specified in paragraphs (a) to (e) of this Clause” shall be excluded from the scope of Qualifying Activities’.

This contrast in composition reflects a clear legislative distinction: where the intent is to exclude ancillary activities, the law does so explicitly, as seen in Article 2(2)(f). The lack of reference to ancillary activities in Article 2(2)(a) indicates that the exclusion it introduces is limited to the core activity itself, and does not extend to ancillary activities falling under Article 2(1)(n).

The structure of Article 2(2) thus establishes a deliberate separation:

• Article 2(2)(a) targets the treatment of main activities when provided to natural persons, and
• Article 2(2)(f) targets ancillary activities but only where the underlying main activity is excluded.

This means that ancillary activities are excluded only when they support main activities that are not within the scope of Qualifying Activities, as determined by the exclusions in Article 2(2)(a) through (e).

In ABC’s case, the main activity under Article 2(1)(e) is expressly excepted from the general exclusion in Article 2(2)(a). Therefore, even when provided to natural persons, they remain Qualifying Activities.

Applying the above interpretation of Article 2(2)(a) and (f), it follows that ancillary activities under Article 2(1)(n), when directly supporting Article 2(1)(e) activities, should also retain their Qualifying status, even where the recipient is a natural person.

This interpretation aligns with the logic and structure of the Ministerial Decision and avoids the irrational outcome of disqualifying ancillary services in cases where they support a main activity for which transactions with natural persons are expressly deemed to qualify.

The disclaimer

Pursuant to the MoF’s press-release issued on 19 May 2023 “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.

The Ministry issued a reminder that official sources of information on Federal Taxes in the UAE are the MoF and FTA only. Therefore, analyses that are not based on official publications by the MoF and FTA, or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law. See the full press release here.

You should factor this in when dealing with this article as well. It is not commissioned by the MoF or FTA. The interpretation, conclusions, proposals, surmises, guesswork, etc., it comprises have the status of the author’s opinion only. Furthermore, it is not legal or tax advice. Like any human job, it may contain inaccuracies and mistakes that we have tried my best to avoid. If you find any inaccuracies or errors, please let us know so that we can make corrections.