The United Arab Emirates (UAE) has introduced a corporate tax law, Federal Decree-Law No. 47 of 2022, effective from financial years starting on or after 1 June 2023. While most businesses will be subject to a 9% corporate tax rate on taxable income exceeding AED 375,000, however there are certain businesses and entities are exempt from corporate tax. In this article, we will discuss the various corporate tax exemptions UAE and their implications on businesses in the UAE
Read more: How to Register for Corporate tax in UAE?
Automatically Exempted Entities
The following entities are automatically exempted from corporate tax in the UAE:
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Government Entities
Government entities and their departments, authorities, and other public institutions are exempt from Corporate Tax in the UAE. This includes federal and emirate-level entities.
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Government Controlled Entities
Companies wholly owned and controlled by a Government Entity that carry out a Mandated Activity, and that are listed in a Cabinet Decision, are also exempt. Mandated Activities refer to activities or services that a Government Entity mandates a company to carry out on its behalf.
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Businesses Engaged in Extractive Activities or Related Non-Extractive Activities
Businesses engaged in the extraction of UAE's natural resources or related non-extractive activities that are subject to Emirate-level taxation are exempt from corporate tax. However, this is subject to the condition that any transactions between the extractive business and other businesses of the same person must be conducted based on arm's length principles.
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Qualifying Public Benefit Entities
Qualifying Public Benefit Entities must be juridical persons and established and operated exclusively for the promotion of social welfare or public benefit are exempt from corporate tax in the UAE. This includes incorporated companies, as well as foundations and trusts that have a separate legal personality.The list of Qualifying Public Benefit Entities is provided in Cabinet Decision No. 37 of 2023. This includes non-profit organizations in the areas of:
- Healthcare and medical services
- Education and training
- Scientific research
- Social services
- Environmental protection
- Arts and culture
- Sports
- Infrastructure
- Utilities
Read more: UAE Corporate Tax Registration Exemptions
Exempted Entities Upon Approval
The following entities are exempted from corporate tax in the UAE upon approval of an application submitted to the Federal Tax Authority:
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Qualifying Investment Funds
Investment funds that are established in the UAE and regulated by the Securities and Commodities Authority (SCA) or the Central Bank of the UAE are exempt from the corporate tax. This exemption applies to both domestic and foreign investment funds that are licensed to operate in the UAE. Investment funds that are structured as unincorporated partnerships are not treated as taxable persons and are therefore exempt from corporate tax. In addition, incorporated investment funds like real estate investment trusts and investment companies can apply for an exemption if they meet certain conditions prescribed by the Federal Tax Authority.
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Public or Private Pension or Social Security Funds
Public or private pension or social security funds that meet the conditions specified in Ministerial Decision No. 115 of 2023 are exempt from corporate tax in the UAE. The conditions include being established and operated in the UAE, being subject to regulatory oversight in the UAE, having a separate legal personality, and being established solely for the purposes of providing pension or social security benefits to their members.
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UAE Juridical Persons Wholly-Owned and Controlled by Exempted Entities
UAE juridical persons that are wholly owned and controlled by certain exempted entities and undertaking activities specified in paragraph (h) of Clause 1 of Article 4 of the Corporate Tax Law are exempt from Corporate Tax in the UAE.
Examples of exempted entities include:
- The UAE Federal and Emirate Governments and their departments, authorities and other public institutions.
- Companies wholly owned and controlled by a Government Entity that carry out a Mandated Activity.
- Businesses engaged in the extraction of UAE Natural Resources or related non-extractive activities that are subject to Emirate-level taxation, subject to meeting certain conditions.
- Qualifying Public Benefit Entities that are listed in Cabinet Decision No. 37 of 2023 or any subsequent relevant decisions.
Implications of Corporate Tax Exemptions UAE
The corporate tax exemptions in the UAE have several implications for businesses and entities that qualify for them. These implications include the following:
- Reduced tax burden: Exempt businesses and entities do not have to pay the corporate tax on their taxable income, which can result in significant cost savings and improved cash flow.
- Competitive advantage: Exempt businesses and entities may have a competitive advantage over their peers that are subject to the corporate tax, as they can offer lower prices or higher returns to their customers or investors.
- Compliance requirements: Exempt businesses and entities must still comply with the relevant tax laws and regulations, such as maintaining proper financial records and filing annual reports. They may also be subject to certain reporting requirements, such as disclosing their tax exemption status to their customers or suppliers.
- Reputation and credibility: Exempt businesses and entities may enhance their reputation and credibility by demonstrating their commitment to the public benefit or charitable purposes.
Conclusion
In conclusion, understanding the corporate tax exemptions in UAE is crucial for businesses operating in the country. While some entities and activities are exempt from corporate tax, others may not qualify for these exemptions. As such, businesses need to seek professional advice from tax consultants in Dubai to ensure compliance with the new tax regime and take advantage of any available exemptions.
