Overview
With its strong infrastructure, strategic location, and business-friendly policies, the United Arab Emirates (UAE) has become a leading global hub for commerce and innovation in the Middle East. Over the years, the UAE government has introduced various measures to align the country’s business environment with international best practices.
A key step in this transformation was the introduction of the Corporate Tax (CT) regime in June 2023. Designed to diversify revenue sources beyond the energy sector, this direct tax system enhances transparency in taxation. Under the new law, a 9% tax is levied on taxable profits exceeding AED 375,000, while businesses earning below this threshold are exempt to support small enterprises.
However, not all entities are subject to corporate tax. Exemptions apply to specific organizations, including investment funds, public benefit entities, private and public pension funds, and others. Businesses that meet the conditions outlined in the law can qualify for tax exemptions, making it essential to understand these provisions for effective financial planning and decision-making.
Exempt Persons in UAE Corporate Tax
As part of the UAE’s landmark Decree-Law on the Taxation of Corporations and Businesses, certain entities are classified as “Exempt Persons,” meaning they are not subject to corporate tax under specific conditions. Article (4) of the law outlines who qualifies for this status and how it applies in practice. The conditions are as follows:
- Government Entities
- Government-Controlled Entities
- A person or Entities Engaged in Extractive Business (meeting Article 7 – Extractive Business conditions)
- A person or Entities Engaged in Non-Extractive Natural Resource Business (meeting Article 8 – Non-Extractive business conditions)
- A Qualifying Public Benefit Entity (meeting Article 9 – Qualifying Public Benefit Entity conditions),
- A Qualifying Mutual Fund (meeting Article 10 – Qualifying Mutual Fund conditions)
- A public or social security fund or private pension/social security fund regulated by the competent authority and meeting any conditions set by the Minister.
- A UAE entity wholly owned and controlled by an Exempt Person (as per points 1, 2, 6, or 7) and that
- Undertakes part or all of the activity of the Exempt Person.
- Exclusively holds assets or invests funds for the benefit of the Exempt Person.
- Engages only in activities that support the Exempt Person’s operations.
- Any other person as determined by a Cabinet resolution based on the Minister’s suggestion.
Stay updated with the UAE Corporate Tax Law during the first tax period.
Partial Taxability for Certain Exempt Persons
Persons under the points 1-3 and 4 of the above are treated as Exempt Persons for specific purposes (Articles 26 – Transfers with a Qualifying Group, Article 27 – Business Restructuring Relief, Article 38 – Transfer of Tax Loss, and Article 40 – Tax Group), even if they are Taxable Persons for any business activities under Articles 5 to 8, which talk about Government Entity, Government Controlled Entity, Extractive business and Non-Extractive business respectively.
Learn more about why not all businesses are subject to corporate tax and which exemptions apply.
Application Requirement for Exemption
Persons falling under the Points 6-9 of the above must apply to the Authority for Corporate Tax Exemption, following prescribed procedures and timelines.
Effective Date of Exemption
The exemption for Persons falling under the Points 6-9 of the above is effective from the start of the Tax Period specified in the application or another date determined by the Authority.
Loss of Exempt Status
If an Exempt Person fails to meet any required conditions during a Tax Period, they will lose exempt status from the beginning of that Tax Period.
Ministerial Discretion for Continued Exemption
The Minister may allow continued exemption or alter the date of cessation of exemption in cases such as:
- The failure to meet conditions is the result of liquidation or termination of the entity.
- The failure is temporary and temporary non-compliance that will be promptly rectified, with monitoring procedures in place to ensure continued compliance.
- Any other cases as may be prescribed by the Minister.
Find out more about the categories of exempt income under UAE corporate tax to ensure accurate reporting.
Conclusion
The UAE Corporate Tax framework has been designed to ensure a fair and transparent taxation system while supporting businesses that contribute to the country’s economic growth. While certain entities, including government-controlled organizations, businesses engaged in natural resource extraction, and qualifying public benefit entities, are exempt from corporate tax, it is essential for businesses to thoroughly assess their eligibility for exemptions. Understanding the nuances of the UAE tax regulations can help enterprises optimize their tax liabilities and ensure compliance with the law.
If you’re unsure about the next steps, explore our guide on the corporate tax registration process for detailed instructions.
How can BCL Globiz help?
At BCL Globiz, we specialize in helping businesses navigate the complexities of UAE Corporate Tax regulations. Our team of experts provides end-to-end tax advisory services, ensuring that your company remains compliant while maximizing tax benefits. Whether you need assistance in determining your tax exemption eligibility, structuring your operations efficiently, or fulfilling corporate tax compliance requirements, BCL Globiz is your trusted partner.
Reach out to our expert today at nikhil@bclglobiz.com and visit www.bcl.ae to streamline your corporate tax obligations and make informed financial decisions.
