Tax Relief for Qualifying Public Benefit Entities

Public benefit entities are a type of non-profit organization (NPO) that are founded by private or governmental bodies and are exempted from corporate tax application. These organizations are formed for the purpose of charitable, scientific, cultural, religious, healthcare or other public benefit activities without aiming to make any profit from those activities. The primary purpose of these public benefit entities is to contribute positively to society. Different charitable organizations, cultural preservation organizations, and organizations involved in relief activities are all included in public benefit entities. The Cabinet Decision No. 37 of 2023 under the Corporate Tax Law specifies the criteria for qualifying as a public benefit entity to be granted relief from corporate tax. This article will outline the criteria for qualifying as a public benefit entity and the application process for tax-exempt status for the ease of non-profit organizations operating in Dubai.

Conditions for qualifying as public benefit entities:

Article 9 of the Corporate Tax Law outlines the criteria to be met by public benefit entities to be eligible for corporate tax exemption. The stipulated conditions are mentioned below:

• The entity is established solely for public welfare and engages in religious, scientific, charitable, artistic, athletic, educational, healthcare, humanitarian, animal protection, and healthcare activities while refraining from any business-related activity.
• The public benefit entity should engage only in those business activities that directly relate to its purpose of social welfare. The entity can use its resources, including the income and assets to bear any expenses that are reasonably incurred in the furtherance of the purpose for which the entity was established. For instance, the organization can use its income to pay staff salaries, fund different welfare projects, fulfill its legal obligations, and maintain buildings and other resources.
• The entity’s assets or income cannot be used for the personal gain of any shareholder. For instance, the entity will not give salaries, bonuses, loans, gifts or other advantages to its shareholders, founder, or members unless they are justified as compensation for the services they provide.

Engagement in political activities

Public Benefit Entities (PBEs) operating in the UAE are strictly required to work for social welfare through charitable, educational, religious, scientific, or cultural activities. These entities are not permitted to engage in political activities like advocating for certain political positions or candidates, as doing so would fall outside the scope of what qualifies as "public benefit”. Involvement in political activities would also compromise the entity’s tax-exempt status. The UAE government has strict policies in place to ensure that entities benefiting from corporate tax relief remain focused on their public benefit objectives and do not involve themselves in political matters. Therefore, the entities must strictly adhere to the regulations regarding their activities to maintain their eligibility for tax exemptions.

Applying for tax exempt status

• The organization that fulfills the abovementioned criteria for a public benefit entity should submit an application to the relevant local or federal government authority with which it is registered to request the corporate tax exemption.
• The exemption from corporate tax would be applicable from the beginning of the tax period in which the Cabinet approves the application, or any other date determined by the Minister.
• The relevant government authority will review the application and may ask for proof showing that the conditions mentioned in the Corporate Tax Law are fully satisfied. Once verified, the authority will refer the case to the Ministry of Finance for inclusion in a memo from the Minister to the Cabinet. After the issuance of such a decision, entity will qualify to be exempt from Corporate Tax.
• The entity must provide all relevant documents to the Ministry of Finance and the Federal Tax Authority. This documentation includes the entity’s name, complete contact information, the objectives and functions of the entity that demonstrate its alignment with the welfare of humanity, governing papers of the entity including articles of association (AOA) and memoranda of association (MOA), financial records and statements, regulatory reports, and other operational details that show entity’s abidance by the law. The goal is to prove that the entity is functioning for public benefit and qualifies under the provisions of Article 9 of the UAE Corporate Tax Law. The entity must ensure full cooperation with state authorities by providing timely and accurate information.

Public benefit entities play a crucial role in working on different societal issues, enhancing societal well-being through different religious, cultural, scientific, humanitarian, and charitable activities. According to the UAE Corporate Tax Laws, public benefit entities need to fulfill a certain criterion in order to qualify for tax-exempt status. The specific conditions and the process of application for tax exemption have been mentioned in the article in great detail. Furthermore, the public benefit entities operating in the UAE can take expert services of tax consultants to navigate the complexities of setting up a non-profit entity in the UAE while ensuring legal compliance.