Corporate tax in the UAE: What qualifies as intellectual property and a patent?

The corporate tax in the United Arab Emirates, which came into effect on June 1, 2023, is already starting to impact an increasing number of active businesses whose tax year is just beginning. This is prompting the business community to reassess its internal processes and structure. Conducting business involves more aspects than may appear at first glance. In addition to core trading operations, the question arises as to whether there are processes or components that are unique enough to be considered for patents. After all, organizations succeed by inventing new things and implementing innovations, which is the essence of competition.

The recent release of Cabinet of Ministers Resolution No. 100, which serves as a five-page supplement to the recommendations for qualifying individuals in free zones, should particularly interest those who recognize the importance of protecting their intellectual property. Effective national tax legislation promotes targeted economic activity. The introduction of qualifying intellectual property allows for the distinction ofpatentsandsoftwarehow elements that will be subject to corporate tax at a zero rate.

Patents and their significance

Let's start with patents. Patents issued by a competent authority are recognized. Moreover, the concept of equivalence is of interest, which includes "utility models, intellectual assets that protect plants and genetic material, as well as designations for hopeless drugs." It should be remembered that "there's no such thing as a free lunch," so there are certain conditions. Intellectual property related to marketing, such as trademarks, does not fit these criteria.

It can be fairly stated that obtaining a patent is a rather costly process, accessible to not every entrepreneur. However, there is good news. The UAE government has already prepared support measures of this kind. The concept is calledcertificate of utilityIt protects innovations of technical ideas based on the principles of nature. This implies that one can protect the form, structure, or their combination. For clarity, let's note that a patent is a more advanced form of these rights. Such patents are issued by the Department of Innovation Development in the Economy and Patents. This same department grants protection for industrial designs, allowing rights to be maintained over its form, pattern, color, or their combinations in three-dimensional form for aesthetic purposes.

Copyright and software

How many of you in the manufacturing sector are familiar with such aspects? Next, let's turn our attention to copyright in software. Its inclusion seems to be related to the minister who, in 2020, recognized it as similar to patent assets.ExpectedThe Federal Tax Service will issue a document that will provide more detailed explanations and address current issues, including differences.

Qualifying expenses

So far, we have only considered income.

Brief summary

Corporate tax in the UAE: What is important to know. The amount of expenses can be further increased by 30% of other costs to the main capital. The principle is that expenses rarely occur in isolation. For their effectiveness, the presence of auxiliary elements is necessary. However, it is unclear when it comes to expenses for acquiring intellectual property. The main task here is to create what is known aspatent boxThe UAE, which represents a well-developed structure used by the governments of countries around the world to stimulate the development and placement of commercial intellectual property in their domestic markets.

This demonstrates the UAE's desire to compete on the international stage in accordance with the norms of other countries. In conclusion, I would like to urge you to be more attentive. The corporate tax legislation is currently in a state of constant change. Decisions from three key bodies — the Cabinet of Ministers, the Ministry of Finance, and the Federal Tax Authority — are being published at an accelerated pace. It is especially important to keep track of what has already been released and what changes have been made subsequently. An example is Ministerial Resolution No. 139, which was issued in June 2023 and replaced by Ministerial Resolution No. 265, published in October 2023. This information is located at the very end of the latest document, and it would be easy to overlook this change, which could impact your tax plans.

David Dali, partner at the Tax Accounting Group in the Gulf region, UAE. Updated: November 20, 2023, 3:30 AM.