Intellectual property is an intangible asset that are owned and officially registered under a person’s name, such as patents, copyrights, copyrighted software, formulas, trademarks, brands, and technical know-how. These intangible assets can be considered as either QIP asset or non-QIP asset.
The QIP asset comprise of intangible assets that have been registered according to the laws governing intangible assets in the UAE or a relevant foreign jurisdiction but are not used for commercial purposes. For example, a trademark used exclusively for one’s own business cannot be considered QIP asset.
Revenue generated from QIP assets can possibly qualify as qualifying income based on a specific formula introduced by the Guide and relevant Ministerial Decision. The specific formula introduced is: Qualifying income equals the ratio of qualifying expenditures plus uplift expenditure to overall expenditure, multiplied by total income.
Qualifying expenditures refer to expenses incurred to support R&D activities, conducted by the QFZP itself or outsourced to an unrelated party in the UAE or out of the UAE, while the Total expenditures encompass all costs and expenses related to the qualifying expenditures, plus acquisition cost and any other associated expenses. Uplift Expenditures refer to additional costs or investments made to increase the value, quality, or functionality of intellectual property assets. However, these expenditures are allowed up to 30% of qualifying expenditures and should not exceed overall expenditures. While the total income means the separately recognizable income derived from the QIP asset.
Expenditures must be relevant to the development of the QIP asset, for instance R&D personnel salaries and wages. For expenses such as administrative costs should be proportionately allocated to the QIP asset.
It is important organizations to maintain a strong tracking system to track the qualifying expenditures, overall expenditure, and overall income are in place, and organized by product as appropriate. Without appropriate tracking system, a QFZP may not be able to show qualifying income from QIP, missing the 0% tax rate benefit.
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Chrysalis will ensure your business is compliant with the law. Our experts team can guide you through the process and make it hassle-free.
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