Corporate Tax & Exempted Persons

A corporate tax exemption is a legal rule permitting certain organizations to decrease or entirely eliminate their tax obligation on a part or the entirety of their earnings.

3/15/20243 min read

Corporate Tax and Exempted Persons

In the UAE's tax system, businesses must deal with Corporate Tax (CT) complexities to follow rules and manage taxes efficiently. However, some businesses are exempt from taxes, making it crucial for others to understand these exemptions for success. In this blog, we'll look into who is exempt from UAE CT and why.

What constitutes a Corporate Tax Exemption?

A corporate tax exemption is a legal rule permitting certain organizations to decrease or entirely eliminate their tax obligation on a part or the entirety of their earnings. These exemptions are designed to promote particular economic endeavors and investments, fostering job growth and overall economic development within a nation. In the UAE, various entities are exempt from corporate tax, which can occur through one of four methods. Let's delve into these methods in detail below:

Automatic Exemption

Government Bodies

In the UAE, government entities are automatically exempt from corporate tax. This exemption arises from their primary activities, which primarily revolve around fulfilling governmental and public duties.

Exemption upon Notification to the Ministry of Finance

Extractive Enterprises and Non-Extractive Natural Resource Enterprises

Extractive enterprises and those involved in non-extractive natural resource activities are exempted from corporate tax due to their significant contributions to the economy. This exemption enables them to channel their profits back into exploration, development, and sustainable initiatives. Nonetheless, to qualify for this exemption, these enterprises must meet certain criteria, including submitting their taxable income to an Emirate-level tax, a separate charge established by each Emirate.

Exemption Listed in Cabinet Decision

Qualified Public Benefit Organizations and Government-Controlled Entities

Non-profit organizations or public benefit entities, driven by their dedication to community service, fall within the exempted category. These entities operate solely for the public's benefit, and taxing them could hinder their ability to fulfill their altruistic missions. Hence, their exemption is a strategic measure to support the common good.

Government-controlled entities, also known as juridical persons, are either directly or indirectly owned and fully controlled by any government entities specified in a cabinet decision. Certain entities are exempt if included in the decision; otherwise, they are subject to specific conditions.

Exemption Sought via Application

Eligible Investment Funds

Aligned with the UAE's commitment to nurturing financial markets, investment funds meeting particular standards can claim exemption from CT. This entails:

  • Regulation by a competent authority within the state.

  • Trading of the fund's interests on a recognized stock exchange or accessibility for trading via other channels.

  • Ensuring the fund's principal objective is not tax evasion.

  • Adherence to any further conditions stipulated by the Minister.

Social Security Funds, Whether Public or Private

Whether it's a public or private pension or social security fund, subject to regulatory supervision by the competent authority within the state, it qualifies for exemption from corporate tax upon application and approval by the Federal Tax Authority.

Fully-Owned and Controlled Subsidiaries of Exempt Entities in the UAE

When an exempt entity fully owns and controls a subsidiary in the UAE, that subsidiary is likewise exempt from CT. Nevertheless, the subsidiary must adhere to specific conditions, including:

  • Engaging in some or all of the activities of the exempt entity.

  • Having the sole purpose of holding assets or investing funds on behalf of the exempt entity.

  • Conducting operations that complement those of the exempt entity exclusively.

Why Some Entities Are Granted Exemption?

Comprehending the rationale behind exempting certain entities from CT obligations is vital for businesses aiming to navigate the tax environment effectively. The primary reason for exempting specific entities lies in avoiding double taxation on the same income, which could impose economic burdens and impede business operations.

At AL WAHAT, our specialized team excels in interpreting and applying tax regulations, guaranteeing your business maintains compliance while also maximizing tax benefits. This ensures your sustained success in today's ever-changing business landscape.