The United Arab Emirates (UAE) has established a Corporate Tax exemption framework that is integral to its economic and fiscal policies. This structure is outlined in the UAE’s Corporate Tax (CT) General Guide, particularly in Article 10 and Section 5.7. These provisions detail the categories of persons and entities exempt from Corporate Tax under specific conditions, reflecting the UAE’s commitment to fostering certain economic activities and social welfare initiatives.
Categories of Exempt Persons
Governmental Entities: This includes persons that are part of or operate under the Federal Government or the Local Governments of the UAE. These entities are automatically exempt from Corporate Tax.
Public Welfare and Social Entities: Entities established for specific public welfare or social aims, including certain public benefit entities, are exempt. This reflects the UAE’s policy to encourage activities that serve the public good.
Oil and Gas Activities: Activities related to oil and gas and other natural resources that are already taxed at the Emirate level are exempt from additional Corporate Tax. This exemption is pivotal in the UAE’s resource-rich economy.
Pensions and Investment Funds: Certain pension or social security funds and investment funds also fall under exempt categories, promoting the country’s financial security and investment activities.
Qualifying for Exemption
Exemptions are not granted unconditionally. Entities must meet specific criteria, which vary based on the category of exemption:
Automatic Exemption: Government Entities are automatically exempt.
Exemption upon Notification: Extractive Businesses and Non-Extractive Natural Resource Businesses must notify the Ministry of Finance and meet relevant conditions to qualify.
Exemption upon Cabinet Decision: Government-Controlled Entities and Qualifying Public Benefit Entities need to be listed in a Cabinet Decision and meet specified conditions to be exempt.
Exemption upon Application: Entities like public and private pension funds, Qualifying Investment Funds, and others must apply and receive approval from the Federal Tax Authority (FTA) for exemption.
Losing the Exempt Status
An entity’s exempt status is not permanent and can be revoked if it no longer meets the exemption criteria. Typically, they would then be subject to Corporate Tax from the start of the tax period in which they fail to meet the criteria. However, in exceptional circumstances, entities can apply to the FTA for continued exemption, highlighting the flexible yet regulated approach of the UAE’s tax system.
How TME Services can navigate your business through the tax landscape in the UAE
The UAE’s Corporate Tax exemption framework is a balanced approach, supporting government entities, fostering public welfare initiatives, and recognising the unique role of the oil and gas sector in the national economy. Entities seeking exemption must closely adhere to the conditions, reflecting the UAE’s commitment to maintaining a fair and effective tax system.
TME Services is a team of 45 professionals in legal-, tax-, accounting and compliance with over 18 years of experience. We advised a significant number of SMEs in the context of the implementation of the tax framework in the UAE and KSA over the last decade to make sure that our clients are well-oriented in the new and fast-evolving tax landscape and to reduce the legal liability of managers which may arise in connection with non-compliance.
