The issuance of Federal Law Decree no. 47/2022 with respect to corporation taxation seeks to construct an integrated tax regime for the enhancement of UAE international financial, and economic support, and competitiveness by establishing partnerships. This article explains the exemptions granted under the UAE corporate tax law. Thus, it is imperative for taxable persons to seek the expert services of Tax Consultant Dubai to establish whether they qualify for exemption and to stay compliant with tax regulations and standards.
The Scope of Exempted Persons
Corporate tax law, UAE furnishes exemptions to qualifying persons. Articles 4 to 10 in Chapter 3 of Corporate Tax Law explains the scope of exempted entities.
➢ Entities covered under Automatic Exemption
Following entities fall in the category of “automatic exemption” as listed below:
- State entities are fully exempted
- A government-controlled institution wholly and partially as no tax will apply to the government person who completely possesses and controls UAE companies
- Energy Resources businesses,
- Qualifying investment funds
- Businesses engaging in the extraction of natural resources
- Businesses engaging in the non-extraction of natural resources
Tax Rates:
| Category | Description | Tax Rate |
|---|---|---|
| Taxable income not exceeding 375,000 UAE dirham (AED) | Qualifying income of a Qualifying Free Zone Person (QFZP) | 0% |
| Taxable income exceeding AED 375,000 | Non-qualifying income of a Qualifying Free Zone Person (QFZP) | Standard corporate tax rate |
➢ Entities get Exemptions on application
- Qualifying Public benefits entities
- Persons who are in the administration
- Social security funds
- Persons who are qualified and are public benefit entities as postulated in article 9 of the corporate tax law
- Public or Private Pension
- No tax will be applied to qualifying investment funds, as mentioned in article 10 of the advance corporate tax law
➢ Qualifying Free Zone Individuals
A free zone person is based on succeeding income (this condition is mentioned in article 18 of the advance corporate tax law) and the qualifying free zone individuals are not responsible for paying tax based on qualifying income. The free zone corporations require the conditions mentioned in article 18 of the advance corporate tax law to be considered as qualifying free zone individuals.
Read more: What expenses are deductible under UAE corporate tax?
➢ Special Exemption
The cabinet or Ministry of finance or any other authority can exempt any entity through notification.
➢ Exempt Income
The following payments will not be considered as a condition when the tax applies:
- Shares earned from the UAE local person also apply to overseas shareholdings.
- Income accrued from a contributing interest, as listed in article 23 of the advance corporate tax law
- Income earned from a foreign permanent business that contains conditions of article 24 of the advance corporate tax law
- Income accrued by a non-resident person of UAE from working internationally in aircraft or ships transportation that fulfils the conditions mentioned in article 25 of the advance corporate tax law
- The salary of individuals is exempted
- Personal income on bank savings deposits is also exempted from tax.
- The Corporate Tax Law 2023 introduced additional conditions for exempting income from real estate investment trusts (REITs).
- Total turnover is not subject to corporate taxation; tax is imposed on profit only.
➢ Exemptions for Taxable Persons
- Capital Gain and Dividend exemption: - A general exemption is available for the shareholders who receive share capital and dividend while making shares transactions with their subsidiaries. The purpose of the exemption on dividends and capital shares is to avoid double taxation due to the many transactions involved.
- UAE Companies Domestic Dividend: - The dividends paid by the local UAE Companies are exempted from Corporate Tax. This exemption also included the dividends paid by free zone entities having zero percent tax.
- Foreign Companies Payment of Dividends: - the dividends paid by the foreign companies are exempt subject to satisfaction of some terms and conditions such as 1). A minimum of five percent shares of the subsidiary must be held with the UAE entity to be in the ambit of exemption.2). If the foreign entity is in the ambit of UAE Corporate law, even then the exemption is available to such shareholders. The objective of this exemption is to prevent businesses from transferring to low-tax constituencies.
Read more: How Can a Tax Consultant Help Your Corporate Tax Preparation in UAE?
➢ Exemption to free zone person on Capital gain
The exemption is available on the disposal of shares if the capital gain is received from the free zone entity on the satisfaction of the following conditions as listed below: -
- The minimum percentage of shares must be 5 percent in the business entity.
- The business entity must be in the ambit of a minimum 9 percent corporate tax or equivalent
➢ Exemption of profits for foreign branches
If there is profit from foreign branches, in such a case, UAE companies may adopt two options
- For the paid abroad taxes by its branch, it may be claimed as a foreign tax credit
- It may claim an exemption on its foreign branch‘s profits.
The decision to apply for the foreign branch dividend exemption applies to all foreign branches of the company in the UAE and is irrevocable. Foreign Branch Profit Allowance cannot be claimed if the foreign branch in the foreign jurisdiction in which the foreign branch is located is properly taxed.
➢ Other tax-free income
Tax-exempt status is granted to non-residents who operate or lease aircraft or ships and equipment-related businesses used in international transportation. There are certain conditions to qualify for this exemption, a company within the United Arab Emirates must be accorded the same tax treatment as the relevant one. Foreign jurisdiction is based on the principle of reciprocity. The source and residence of the taxpayer are the key determinants of corporate tax and the applicable tax base depends on the classification of the taxpayer.
Avail the Best Tax Consultation in UAE
It is imperative for taxable persons to seek the expert services of Tax consultants in UAE to establish whether they qualify for exemption and to stay compliant with tax regulations and standards. Thus, contact us today and we shall be happy to assist you.
Mohammad Alkhatim
Mohammad is a qualified Legal Consultant with over 5 years of experience gained in diverse intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He has vast experience in reviewing and drafting tax documents. Mohammad has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlining tax complexities.
