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Are Government and Government-Controlled Entities exempt from corporate tax UAE?

 This article seeks to explore whether government entities and government-controlled entities are exempt from corporate tax UAE as per the latest Corporate Tax Explanatory Guide. Thus, taxable persons are advised to seek the services of Tax Consultants in Dubai to seamlessly determine their taxability and to stay compliant.   

What are Government Entities under Corporate Tax UAE?

Government entities refer to organizations established by the government to carry out specific functions, typically related to public administration, provision of public services, or governance. These entities are often wholly or partially owned by the government.

Applicability of Corporate Tax to Government Entities

Government entities operate for public purposes rather than profit generation, therefore as per the latest Corporate Tax Explanatory Guide, government entities are exempt from corporate tax. However, it is essential to note that distinct exceptions might apply.

Exceptions for Government Entities 

Although government entities are exempt, there are scenarios that might subject them to corporate tax. These exceptions include:

  • Commercial Activities: If a government entity engages in commercial activities that compete with private sector businesses, it may be liable to pay corporate tax on the income generated from those activities. This exception marks and ensures a clear distinction between government entities and private sector enterprises.
  • Mixed Ownership Structures: In cases where a government entity operates as a joint venture with private entities, the portion of income attributable to the government entity’s ownership might be subject to corporate tax. This exception ensures that profits derived from private sector participation are appropriately taxed.

Read more: Exempt businesses under the corporate tax in UAE 

What are Government-Controlled Entities?

Government-controlled entities are organizations in which the government, either directly or indirectly, holds a controlling interest. This control is established through the ownership of a majority of shares or voting rights within the entity. Government-controlled entities can encompass a wide range of organizations, including state-owned enterprises, public corporations, and entities established for public purposes.

Applicability of Corporate Tax to Government-Controlled Entities

Government-controlled entities are subject to corporate tax as per the Explanatory Guide. Despite being controlled by the government, these entities are recognized as separate legal entities and are required to meet corporate tax obligations on their taxable income generated from the respective business activities, investments, or any other sources outlined in the Corporate Tax Law.

Read more: How to Register for Corporate Tax in UAE?

Compliance with Corporate Tax Obligations

Government-controlled entities are required to comply with corporate tax obligations, this includes maintaining accurate and up-to-date accounting records and preparing financial statements in accordance with applicable accounting standards to mention a few. To add on, government-controlled entities are required to file their tax returns within the specified timeframe, make timely tax payments based on their taxable income, and comply with tax authorities during any tax audits or investigations. 

Choose Tax Consultants in UAE for Premier Tax Advisory Services

It is imperative for government entities and government-controlled entities to fully understand their corporate tax obligation and to stay compliant, to which noncompliance accrues hefty fines.  To learn more, contact us today and we shall be happy to assist you.

Mostafa is a qualified Corporate Tax 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. Mostafa 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. Read more