A Guide to Exempted Entities Under the UAE Corporate Tax

In a big regulatory change, the UAE has introduced a corporate tax on business profits to make the country a leading global hub for business and investment. At a 9% rate, the UAE corporate tax is one of the lowest in the world, which will give a competitive edge to businesses. The UAE corporate tax is slated to come into force from 1st June 2023.

Against this backdrop, the businesses incorporated in the UAE are advised to assess their tax obligations and prepare in advance. Consulting with tax consultants in Dubai will come in handy for businesses to ensure corporate tax compliance. Tax consultants can help businesses determine whether or not they fall within the scope of corporate tax in the UAE.

The UAE government has published a consultation document that details the type of entities that will be subject to the corporate tax regime. The document also lists certain entities that are exempted from the UAE corporate tax. This article describes in detail the entities that enjoy exemption from corporate tax in the UAE. Read ahead to know more:

Government and Government-owned entities 

The UAE companies wholly owned by the government that carries out a sovereign or mandated activity will be exempt from the UAE corporate tax. The UAE subsidiaries of such government-owned companies can also apply for exemption from corporate tax, provided they carry out part or whole of the sovereign or mandated activity or ancillary activities.

Companies Carrying out Natural Resources Extraction  

Income or share of income from the extraction and exploitation of natural resources directly earned by the government is outside the scope of the UAE VAT. Similarly, royalties and other fiscal levies raised by the Government from the extraction or production of natural resources by private sector companies will also be outside the scope of the corporate tax. However, companies engaged in the extraction and exploitation of natural resources carry out such activities under long-term concession agreements with the governments of relevant emirates.

As a result, profits earned by such companies are subject to Emirate-level taxation. The UAE corporate tax regime respects such long-term contracts and permits exemption for the income earned by companies subject to Emirate-level taxation. However, such an exemption doesn’t apply to any suppliers, contractors or subcontractors used by the company. Consult with tax consultants in Dubai to understand whether your company is eligible for this exemption.

Charities and Public Benefit Organisations 

Charities and public benefit organisations will be exempt from the UAE corporate tax as they share responsibility with the Government for promoting social or public welfare and communal or group interests. Organisations carrying out social, cultural, religious, charitable or other public benefit activities, can apply to the Ministry of Finance to be exempt from UAE corporate tax. Once approved, the ministry will list the charitable organisation in a Cabinet Decision to be issued at the request of the Minister of Finance.

However, it is at the government’s discretion to determine whether a charitable organisation qualifies for the corporate tax exemption in the UAE. The government will not allow an exemption to organisations conducting commercial activities that are not directly related to their stated purpose. Furthermore, the exemption will not be given to organisations whose income and donations are used for the personal gain of persons associated with the organisation (e.g., the founders and fiduciaries).

Social Security and Retirement Pension Funds 

Public and regulated private social security and retirement pension funds will be exempted from the purview of the UAE corporate tax regime. However, approved charities and public benefit organisations must comply with periodic information reporting obligations throughout their existence.

Investment Funds 

Regulated investment funds and real estate investment trusts are eligible for UAE corporate tax exemption. They can apply to the Federal Tax Authority (FTA) to be exempt from the corporate tax regime. The FTA will approve tax exemption for investment funds that meet its requirements. Tax consultants in Dubai can help you to apply for corporate tax exemption.

Consult with the Best Tax Consultants in Dubai, UAE 

The consultation document published by the MoF provides insights on the UAE corporate tax regime, especially the types of entities exempted. The document is open for feedback from the public and hence further revisions may occur. Therefore, businesses are advised to consult with the best tax consultants in Dubai such as Jitendra Chartered Accountants (JCA) before making any decision. JCA can advise you on key corporate tax provisions such as the formation of tax groups, treatment of tax losses, tax exemptions, the tax liability of free zone entities etc. We are FTA-approved tax agents in Dubai and our expertise will come in handy for you to comply with the corporate tax.