Certain businesses are exempted from the 9% corporate tax law issued by the UAE. Such exemptions can be applied to businesses that met certain conditions. Hence, before implementing the corporate tax to your business, make sure you come under any businesses in this article to get the tax exemption.
Corporate Tax was initially launched by the Ministry of Finance, UAE in January 2022 at 9%, and will be implemented in the country by June 2023. The businesses are thus given ample time to make necessary changes and updates.
Learning the UAE Business Market
The business market in the UAE is flourishing with new investments and opportunities and the growth possibilities are transforming! Compared to previous years, the national economic register data has shown a 1.9% increase in the total number of active businesses in July 2022. According to the data records, over 80% of the licensed companies are in Abu Dhabi, Sharjah, and Dubai, out of which Dubai has swept the maximum share of 46% of the country’s licensed businesses.
UAE launched Corporate Tax issued for mainland and qualifying Freezone persons that will play a major role in the UAE economy starting from June 2023.
Entities do not come under Corporate Tax in UAE
The most common factors of corporate tax exemptions for businesses are,
- Small and medium-sized businesses with revenue up to AED 375000
- Multiple enticements provided along with corporate tax to the Free Zones would persist
- Businesses not found on the Mainland would not be affected
- Dividends and Capital gains received via shareholdings would not be charged any corporate tax
- Inter-group transactions and transformations would also be exempted from corporate tax
The businesses in UAE that are eligible to be exempt from the UAE Corporate Tax,
- Government Entities
- Government Affiliated Entities
- Extractive Business
- Non-extractive Natural Resource Business
- Qualifying Public Benefit Entity
- Qualifying Investment Fund
All these businesses become applicable to the Corporate tax unless the entities comply with the conditions to acquire the corporate tax exemption. Here is the Guide for entities to come under the tax law and be exempted from UAE Corporate tax.
Government Entities
1. Government entities would be exempted from Corporate Tax and the provisions of the Decree Law are not applied to them
2. The Government entities would be affected by provisions of the Decree-Law if a business or a business activity is conducted under a License issued by the Licensing Authority
3. Business or a business activity conducted under a License issued by the Licensing Authority would be treated as an independent business, and the Government Entity would keep the financial statements separate for the business from other activities of the government entities.
4. Taxable Income would be independently calculated every Tax Period for the activities of businesses that are licensed by the authority
5. Transactions between the licensed businesses, along with other activities of the Government Entity would be considered transactions of the Related Party affected by the provisions of related parties and control law.
6. Government Entity shall be applied to the Authority for every Business or Business Activity to be considered as a single Taxable Person for various factors of Decree-Law to meet the conditions declared by the Minister
Government-Affiliated Entities
1. The affiliated entities would be exempted from the Corporate Tax and the factors of the Decree Law would not be applied
2. The affiliated entities would be affected by the provisions of the Decree Law only if the business or business activity is not a mandated one.
3. The business or business activity conducted that is not mandatory would be treated as an independent business and these affiliated entities would have financial statements for the business activity separately from the mandated activity
4. The Affiliated Entities calculate the Taxable Income for business activity that is not mandatory, independently for every Tax Period based on the specifications of the Decree Law
5. Transactions made for non-mandatory tasks, along with other activities of the affiliated entity would be considered transactions of the Related Party affected by the provisions of Related Parties and Control Law.
CT exemption for Extractive Business
1. A Person doing an Extractive Business where the following conditions are met is exempted from Corporate Tax:
- A person directly or indirectly shows interest in a right, or License issued by the Local Government to undertake the Extractive Business
- Person is broadly affected by the tax under specific regulations of an Emirate based on the conditions of exemptions if the local government imposes the tax.
- Person makes a notification to the Ministry in the manner approved by the local government
2. If a person inherits income from both an Extractive Business and another business can also be exempted only if the following conditions are applied:
- Income from the Extractive Business is calculated and taxed based on the applicable legislation of the Emirate.
- Income from other businesses will be affected by the conditions of the Decree Law unless the other business comes under Non-Extractive Natural Resource Business.
3. A person would not be considered to inherit income from any other business wherein such businesses are supportive to the Extractive Business and the revenue of the such external business in a Tax Period does not exceed 5% of the total revenue of the person in the same tax period.
4. To calculate the Taxable Income of the person’s other business, the following will be applied:
- The other business is considered independent, and the financial statements are kept separately for this business from Extractive Business
- A common expense shared between the extractive business and other businesses will be allocated proportionally to the revenue in the Tax Period unless these expenses are considered in various proportions to calculate the tax payable under the regulations of the respective Emirate with respect to the Extractive business, where the expense is allocated in the latter proportion
- The person calculates the Taxable income for other businesses independently according to the conditions in the Decree-Law
5. A person is considered to be impacted by a tax under the regulations if the Local Government imposes a tax on income or profit, royalty or revenue tax, or any form of tax, with respect to the Extractive Business of that person
6. These exemptions are not applicable to contractors, subcontractors, producers or any person used as a part of the Extract Business.
Non-Extractive Natural Resource Business
1. A person can be exempted from Corporate Tax to the Non-extractive Natural Resource Business when the following conditions are met:
- A Person directly or indirectly has an interest in a right, allowance, or License from the Local Government to commence the Non-Extractive Natural Resource Business
- The income of a Person from the Non-Extractive Natural Resource Business is inherited solely from those who control a business or a business activity
- The Person is strongly impacted by Corporate Tax under the regulations of an Emirate based if the local government imposes the tax.
- The Person has notified the Ministry in a manner approved by the Local Government
2. If a person inherits income from both a Non-Extractive Natural Resource Business and another business that comes under corporate tax law, the following conditions are applied:
- Income from the Non-Extractive Natural Resource Business is calculated and taxed based on the regulations applicable
- Income from other businesses will be affected by the Decree Law unless the other business meets the conditions to be exempted from the Corporate Tax under these conditions.
3. A person would not be considered to inherit income from any other business that is supportive of the Non-Extractive Natural Resource Business and the revenue of the such external business in a Tax Period does not exceed 5% of the total revenue of the person in the same tax period.
4. To calculate the Taxable Income of the person’s other business, the following will be applied:
- The other business is considered independent, and the financial statements are kept separately for this business from the Non-Extractive Natural Resource Business
- A common expense shared between the extractive business and other businesses will be allocated proportionally to the revenue in the Tax Period unless these expenses are considered in various proportions to calculate the tax payable under the regulations of the respective Emirate with respect to the Non-Extractive Natural Resource business, where the expense is allocated in the latter proportion
- The person calculates the Taxable income for other businesses independently according to the conditions in the Decree-Law
5. A person is considered to be impacted by a tax under the regulations if the Local Government imposes a tax on income or profit, royalty or revenue tax, or any form of tax, with respect to the Extractive Business of that person
6. The exemptions are not applicable to contractors, subcontractors, producers, or any person used as a part of the Non- Extractive Business that does not righteously meet the exemption criteria of Extractive Business.
Qualifying Public Benefit Entity
1. A Qualifying Public Benefit Entity can be exempted from Corporate Tax wherein the following conditions are met:
2. Established and deployed for one of the following:
- For religious, charitable scientific, artistic, athletic, educational, healthcare, environmental, humanitarian, animal protection and other similar reasons
- Being a professional unit, chamber of commerce, or similar unit managed exclusively to promote social welfare or public benefit
3. No Business or business activity except for the activities pertaining to accomplishing the purpose of establishing this unit
4. No part of income or assets is payable to or available for the benefit of a shareholder, member, trustee, or a founder that itself is not a Qualifying Public Benefit Entity, Government Entity, or a Government Controlled Entity
5. Any external conditions that would be prescribed in a decision declared by the Cabinet as per the suggestion of the Minister
6. These exemptions criteria could be effective from the commencement of the Tax Period wherein the Qualifying Public Benefit Entity is listed in the Cabinet decision declared as per the suggestion of the Minister, or any date evaluated by the Minister
7. To monitor the regular compliance by a Qualifying Public Benefit Entity that obeys all the above conditions, the Authority probably requests relevant information or records from Qualifying Public Benefit Entity within a specific timeline prescribed by the Authority
CT Exemption for Qualifying Investment Fund
1. An Investment Fund could apply for exemption from Corporate Tax by the Authority as a Qualifying Investment Fund wherein the following conditions are met:
- The investment fund or the manager of the investment fund is impacted by the regulatory supervision of the efficient authority or a foreign authority
- Investment fund interests are transacted on a Recognized Stock Exchange or are traded and made adequately available to the investors
- The ultimate purpose of the investment fund is to not avoid Corporate Tax
- Any other conditions would be mentioned in a decision declared by Cabinet as suggested by the Minister
2. To monitor the regular compliance by a Qualifying Investment Fund with the conditions aforementioned, the Authority probably requests relevant information or records from Qualifying Investment Fund within a specific timeline prescribed by the Authority
How Can BMS Help?
With the leading tax consultants in the UAE, you need not worry about getting stuck with Corporate Tax laws. BMS Auditing Dubai has the most qualified and highly experienced tax advisors who always stay updated with the changes in the Tax regulations by the FTA. You can rely on us anytime for queries and assistance regarding Corporate Tax.
Call BMS if you need help with the changes in the Corporate Tax Laws!
