Understanding Corporate Tax-Exempt Persons Categories in the UAE
When the UAE introduced its corporate tax system, it got the attention of business owners and finance professionals across the region. A 9% corporate tax starting in June 2023 was a significant adjustment because, previously, the nation was tax-free. But here’s the good news: not all businesses are subject to this new tax.
In fact, several categories of entities are fully or partially exempt under the law. So, it’s essential for businesses operating in the UAE to know who is or isn’t a corporate tax-exempt person to avoid non-compliance and unnecessary tax liabilities.
This article looks at those corporate tax exemptions under the UAE Corporate Tax Law, how exemptions are applied, and what to do if you think your company falls into one of these categories.
UAE Corporate Tax Overview
Federal taxes on business taxable income are known as corporate taxes in the United Arab Emirates. It is applicable to fiscal years beginning on June 1, 2023. An income tax of 9% is imposed on income above AED 375,000, while no tax is applicable for income up to this limit.
Corporate taxation is under the purview of the Ministry of Finance and the FTA, with an aim towards transparency and fairness, along with international conformity with an arrangement like the OECD’s Base Erosion and Profit Shifting (BEPS).
Such taxation is imposed on companies incorporated in the UAE or carrying on business in the country or having a presence therein, but with the exception of those companies that are corporate tax-exempt persons.
Who is a Corporate Tax-Exempt Person?
Under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), some entities are exempt from corporate tax either automatically or upon applying for such. The following are its principal categories.
Government Entities
If you belong to a federal or Emirate-level government authority, you’re exempted. This covers ministries, departments, and other governmental institutions – provided you’re not involved in commercial undertakings outside your government role.
Government-Controlled Entities
Entities that are wholly owned by the government may also qualify. But there’s a catch: the exemption applies only to activities specified in a Cabinet Decision. If your entity earns income outside those activities, that income may still be taxed.
Extractive Businesses
Companies involved in extracting natural resources – like oil and gas – are exempt, but only if they:
- Are subject to Emirate-level taxation
- Have a valid license from the local government.
This ensures there’s no double taxation across federal and Emirate levels.
Non-Extractive Natural Resource Businesses
If your business works with natural resources that don’t involve water extraction, like solar energy, air, wind and you’re taxed under a separate Emirate regime, you may also qualify for exemption. Your adherence to regional licensing and reporting regulations will determine this.
Qualifying Public Benefit Entities
This covers charities, non-profits, foundations, and associations that serve a social, religious, cultural, or educational purpose. However, these entities must:
- Apply to the FTA
- Be listed in a Cabinet Decision
- Operate strictly within their approved purpose
If you run a non-profit, don’t assume you’re exempt – get official recognition and keep good records.
Pension and Social Security Funds
Approved pension and social security funds – both public and private – are exempt, provided they’re regulated and meet strict conditions. If your organization manages such a fund, make sure you stay within the qualifying criteria to maintain your status.
Qualifying Investment Funds
Not all investment funds are treated equally. It may be exempt if it:
- Is regulated by a relevant authority in the UAE
- Is not primarily engaged in commercial business
- Meets additional conditions set by the FTA
Each fund is assessed individually, so seek professional help from firms offering corporate tax services in UAE, like Premier Auditing & Accounting LLC, before assuming you’re exempt.
Wholly-Owned UAE Subsidiaries of Exempt Persons
When there is a 100% UAE-owned subsidiary by an exempt body (e.g., pension scheme or charity), the exemption may be sought if the subsidiary’s activities are directly in furtherance of the exempt purpose of its parent company. The exemption may not always be automatic.
Seeking a Corporate Tax Exemption
Some exemptions, like those for government entities, apply automatically. Others, especially for non-profits and investment funds, require formal approval from the FTA. It’s not always straightforward, and missing a step can cause delays. That’s why expert support can make all the difference.
Here’s what the process usually looks like:
- Submit an application via the FTA’s online portal
- Provide documentation that proves eligibility
- Wait for confirmation – if approved, you’ll be listed as an exempt person
You’ll also need to notify the FTA if anything changes. For example, if a public benefit entity starts generating commercial income, it may lose its corporate tax exemption status.
Why Getting it Right Matters?
Misclassifying your business or failing to apply for exemption can be costly. You could face:
- Back taxes
- Penalties
- Interest charges
- Even criminal liability in extreme cases
That’s why it is smart to work with experts in corporate tax services in the UAE who understand the finer points of the law and your specific business model. At Premier Auditing & Accounting LLC, we help businesses like yours to figure out where they stand under the corporate tax framework. As one of the top audit firms in Dubai, we do not just crunch numbers – we provide peace of mind.
Your Partner in UAE Corporate Tax Exemption
Corporate tax in the UAE is here to stay, but it doesn’t apply to everyone. If you believe your organization qualifies as a corporate tax-exempt person, don’t rely on assumptions. Check the criteria, prepare your documents, and, if needed, apply through the proper channels. The process can feel technical, but with the right guidance, it’s completely manageable.
Premier Auditing & Accounting LLC provides complete guidance to non-profits, fund managers, and government-owned entity administrators throughout the entire process. Our team handles all the details so you can maintain your mission focus without worrying about corporate taxes. Our team functions as your behind-the-scenes partner to handle complex details so you can lead with confidence and peace of mind.
Previous
