A Simple Guide to Making Sense of the Di Minimus Rule for Hardware Traders in Dubai Free Zones
Di Minimus Rule, Business in Freezone UAE has always been attractive to small traders, shopkeepers, and suppliers of hardware and building materials. No customs duty, 100% foreign ownership, and a reputation for hassle-free business make Dubai’s free zones a top choice. But with the new UAE corporate tax rules, especially the Di Minimus Rule, many are asking: “Does this affect me? Do I now have to pay tax?”
Let’s break it down in plain, everyday language. No legal jargon—just the takeaway for you as a shopkeeper or supplier.
What is the Di Minimus Rule?
The Di Minimus Rule is part of the UAE’s new corporate tax framework which came into effect in June 2023. It mainly affects businesses set up in Free Zones who want to continue enjoying 0% corporate tax.
Here’s what it says in a nutshell:
To keep your 0% tax benefit, your income from the mainland must be minimal or limited to allowed categories. If your “unqualified income” from the mainland crosses a certain threshold, you lose your free zone tax benefits and are taxed like any other mainland company.
What counts as “Unqualified Income”?
If you’re in a Free Zone and sell directly to UAE mainland clients (like contractors, traders, or walk-in customers outside the free zone), that income is called unqualified income, unless it’s through a registered mainland distributor or meets special conditions.
If this unqualified income becomes too high, you lose the 0% rate. This is where the Di Minimus threshold comes in.
Di Minimus Limit – The Key Number to Remember
To keep the 0% tax status, unqualified income must not exceed:
- AED 5 million, or
- 5% of your total revenue,
whichever is lower.
If your non-qualifying income crosses this limit, your entire income (even the Free Zone part) becomes taxable at 9%.
Let’s Look at a Simple Example
Say you’re a hardware trader in a Free Zone (like JAFZA or Sharjah Airport Free Zone). You supply safety helmets, power tools, nuts and bolts.
- You made AED 3.5 million selling to mainland clients directly.
- Your total income is AED 60 million.
In this case:
5% of AED 60 million = AED 3 million.
But your unqualified income is AED 3.5 million, which is above the limit.
So, you lose the 0% tax rate—and must pay 9% corporate tax on the full AED 60 million.
This is Where Many Shopkeepers Might Get Caught Out
Hardware and building material suppliers in Free Zones often do both:
- Supply to clients within Free Zones (qualifying income).
- Also take orders from mainland contractors, sites, or shops (non-qualifying income).
If you’re not keeping this income separate—or if you’re not using a proper mainland distributor—your unqualified income may unknowingly cross the Di Minimus threshold.
What Should Shopkeepers and Suppliers Do Now?
This rule doesn’t mean panic—it means you need to organise your invoicing and client base carefully.
Here’s a simple action plan:
1. Understand where your clients are located.
Make a list: How many of your regular customers are in the mainland? How much do they buy?
If you cross the Di Minimus limit, you’ll have to prepare for 9% tax.
2. Use a mainland distributor.
If you want to keep selling to mainland clients, route the sale through a registered mainland distributor. This way, it doesn’t count as unqualified income.
Many Free Zone suppliers now partner with mainland companies to handle billing.
3. Keep clear accounting records.
Start separating your Free Zone and Mainland income from the start of your financial year. Proper bookkeeping will help you prove to authorities whether you stayed within limits.
4. If your mainland business is growing, consider switching.
If more than 50% of your sales are coming from mainland UAE, it might be worth considering a mainland business licence instead of staying in a Free Zone and losing tax benefits anyway.
You’ll get flexibility and avoid complications of tracking Di Minimus.
Does This Apply to All Free Zones in UAE?
Yes, the rule is applicable to all Qualifying Free Zones, including:
- JAFZA (Jebel Ali Free Zone)
- DAFZA (Dubai Airport Free Zone)
- RAKEZ (Ras Al Khaimah Economic Zone)
- SAIF Zone (Sharjah Airport International Free Zone)
- DMCC (Dubai Multi Commodities Centre)
Even if your Free Zone hasn’t specifically informed you yet, the law is federal and binding.
But I’m Just a Small Shopkeeper. Will They Really Come After Me?
The UAE is building a reputation for global compliance. The new corporate tax law is part of this. Authorities are expected to audit businesses selectively. Even if you’re small now, as soon as your numbers are filed for the financial year, the system will flag companies crossing the Di Minimus threshold.
It’s better to be prepared than pay penalties later.
Benefits of Staying Within the Rule
If you manage your income carefully, you can:
- Continue enjoying 0% corporate tax
- Avoid complex filing
- Stay compliant with UAE law
- Keep your reputation clean for future business or financing
Many Free Zone businesses that play smart are already building trust with government projects, real estate developers, and importers—because their paperwork is clean.
Final Word for UAE Hardware and Material Suppliers
Business in Freezone Dubai is still one of the best ways to operate in the UAE. But with the new corporate tax rules, the Di Minimus Rule is not just fine print—it’s a make-or-break number.
If you’re a shopkeeper, supplier, or trader dealing in fasteners, paints, electricals, plumbing, tiles, or tools—this rule is now part of your business reality.
Don’t wait till the tax man comes knocking. Speak to your accountant, understand your numbers, and make smart decisions about where and how you sell.
The UAE market is full of opportunity—and now, more than ever, it rewards those who stay informed and compliant.
