The UAE has recently released a new legislation of the corporate tax and it will come into force from June 2023. While under the UAE corporate tax law, corporations earning over AED 375,000 of taxable profits will be required to pay a tax of 9%, several entities are tax-exempt. This Tax Consultant Dubai aims to cover all aspects related to corporate tax exemptions in the UAE.
Who qualifies for corporate tax exemptions in the UAE?
The UAE corporate tax law has some exceptions that allow some entities not to be subjected to the corporate tax. These tax-free entities in UAE include:
- Small businesses: The provisions of the 9% corporate tax do not apply to small business enterprises particularly those with a taxable income of less than AED 375,000. From this it can thus be concluded that according to the rules, the tax rate is as good as zero percent.
- UAE Government and Government-Controlled Entities: Some of the government entities and government-controlled entities engaged in operations in the UAE enjoy the UAE corporate tax exemption. These entities include the federal and local government of the UAE and their department, agencies, ministries, authorities, and institutions.
- Businesses Engaged in Natural Resource Extraction: Companies engaged in the extraction of natural resources can benefit from the UAE corporate tax exemption. They remain subjected to Emirates-level corporate tax on the other hand.
- Non-Extractive Natural Resource Businesses: Currently, the UAE allows corporate tax exemption for non-extractive natural resource businesses that fulfil conditions of UAE Corporate Tax law.
- Qualifying Public Benefit Entities: Exemption from UAE corporate tax may be applicable to public benefit entities that satisfy certain criteria as stated in article 9 of the UAE Corporate Tax Law.
- Qualifying Investment Funds: Qualifying Investment funds that satisfy the threshold criteria outlined in Article 10 of the UAE business at tax law and Cabinet Decision No 81 of 2023 are exempt from UAE business tax.
What are the corporate tax exemptions in UAE?
- Investment Funds Tax Exemption
-
- Investment funds can seek tax relief from the Federal Corporate Tax if they meet all the following conditions:
- It must be formed and operated solely for purposes, such as charitable, religious, cultural, athletic, health care, educational, or as otherwise allowed under Connecticut law.
- It should not engage itself in any other business apart from those that are relevant to the function for which it was established.
- The earnings or assets cannot be used for anything else apart from developing the entity or for any necessary and reasonable expenses.
- None of the income or assets shall be utilizable for any private gains of any shareholders, trustees, founders, members, or settlers.
-
Public Benefit Entities Tax Relief
One of the vital supports public benefit entities offer in the UAE is to offer services on education, health, or any charitable work. Due to their social relevance, the government have ensured that they fall under the lists of activities that may not be subjected to UAE corporate tax. To qualify for this exemption, a public benefit entity must meet all the following conditions:
- It must be formed and operated solely for purposes, such as charitable, religious, cultural, athletic, health care, educational, or as otherwise allowed under Connecticut law.
- It should not engage itself in any other business apart from those that are relevant to the function for which it was established.
- The earnings or assets cannot be used for anything else apart from developing the entity or for any necessary and reasonable expenses.
- None of the income or assets shall be utilizable for any private gains of any shareholders, trustees, founders, members, or settlers.
-
Foreign Branch Profits Exemption
Foreign branch profits are completely tax free if that branch is situated in a country with which the UAE has entered into any tax treaty and provided that branch is being taxed in that country.
- Dividend Tax Exemption
Under the UAE corporate tax system, dividends that a UAE corporation receives from another UAE corporation are not taxable in the UAE.
-
Capital Gains Tax Exemption
Any capital gain resulting from the sale of shares in a UAE company is not subject to UAE corporate tax if those shares have been owned by the taxpayer for more than 12 months.
Read more: What expenses are deductible under UAE corporate tax?
Summary of UAE Corporate Tax Exemptions
| Entity | Tax Exemption | Conditions |
|---|---|---|
| Small Businesses | 0% tax on taxable income up to AED 375,000 | Taxable income less than AED 375,000 |
| UAE Government and Government-Controlled Entities | 100% tax exemption | Conducting no business activity under a license issued by a suitable licensing authority |
| Businesses Engaged in Natural Resource Extraction | Emirate-level corporate tax | Directly or indirectly holding or having an interest in a right, concession, or license issued by a Local Government |
| Non-Extractive Natural Resource Businesses | Emirate-level corporate tax | Directly or indirectly holding an interest in a right, concession, or license issued by a Local Government |
| Qualifying Public Benefit Entities | 100% tax exemption | Created and run exclusively for charitable, religious, cultural, athletic, healthcare, educational purposes |
| Qualifying Investment Funds | Tax relief | Under the regulatory supervision of an authority in the UAE or a recognized foreign authority |
| Foreign Branch Profits | 100% tax exemption | Foreign branch located in a jurisdiction that has a tax treaty with the UAE and subject to tax in that jurisdiction |
| Dividends | 100% tax exemption | Received from another UAE corporation |
| Capital Gains | 100% tax exemption | Shares held for at least 12 months |
FAQs
What entities are exempt from corporate tax in the UAE?
Some of the entities that can be exempted from the corporate tax in the UAE include; Small Trading Businesses that have a taxable income below AED 375,000 for any given financial year, Government and government-controlled entities, businesses that deal with natural resources extraction, non-extractive natural resource businesses, entities that belong to the public benefit category, and investment companies that fall in the qualifying investment fund category.
Are investment funds eligible for tax exemptions in the UAE?
Yes, if the investment funds meet some conditions provided in the Article 10 of the UAE Corporate Tax law and the Cabinet Decision No (81) of 2023, then they are free from UAE corporate tax.
How do foreign branch profits benefit from UAE tax exemptions?
Profits earned by the foreign branches are exempted from UAE corporate tax if the concerned foreign branch is in a tax treaty partner country and the branch is also subjected to tax in the said country.
Are dividends and capital gains exempt from UAE corporate tax?
Dividends received by a UAE corporation from another UAE corporation are exempt from UAE corporate tax. Moreover, capital gains derived from the sale of shares in a UAE company are exempt from UAE corporate tax if the shares have been held for at least 12 months.
What is the process for claiming a tax exemption in the UAE?
The procedure for applying for the tax exemption in the UAE differs depending on the type of the tax exemption claimed. In this case, it is advised that any business that wants to claim a tax exemption should seek advice from a tax specialist.
Read more: How Can a Tax Consultant Help Your Corporate Tax Preparation in UAE?
Conclusion
The UAE corporate tax law offers several Corporate Tax Exemptions in UAE to relevant companies of which include, small corporations, government agencies, public interest organizations, and investment funds. By knowing these, business entities are in a position to align its tax planning and compliance to its maximum efficiency. However, it is advised to talk to a corporate tax consultant in UAE for more information.