Entities Exempted from Corporate Tax in UAE

Entities exempted from corporate tax in UAE refer to companies relieved of various tax obligations, encompassing the tax registration requirement, filing tax returns, and settling the applicable tax liabilities, constituting what is termed as a personal exemption. This exemption extends to a diverse array of companies and entities, such as extractive business enterprises and non-extractive natural resource businesses. It is important to note that personal exemption differs from objective exemption, which pertains to specific types of generated income.

Exempted Entities under Corporate Tax UAE

Entities Exempted from Corporate Tax in UAE include:

  • Government agencies and their affiliated entities.
  • Extractive business companies.
  • on-extractive natural resources business companies.
  • Eligible investment funds.
  • Qualified public benefit entities.
  • Public or private pension or social insurance funds are subject to regulatory oversight by the competent authority in the country.
  • Companies domiciled in the country that are entirely owned and controlled by government agencies, their affiliates, qualified investment funds, or public or private pension or social insurance funds.

1. Extractive Business Companies

The corporate tax exemption for extractive business companies is contingent upon meeting specific conditions and satisfying the stipulated exemption criteria. The prerequisites for granting corporate tax exemption to extractive business companies encompass:

  • Ownership of, or a direct or indirect interest in, a right, concession, or license issued by the local government for the purpose of conducting extractive business activities.
  • Actively being subject to taxation as per the prevailing legislation in the emirate. This entails the company making payments of a designated tax to the local government, which may manifest as income tax levied in the emirate or a royalty fee related to production or sale, or any other financial component outlined in the contractual agreement with the relevant government agency.
  • The obligation to inform the Ministry of Finance regarding its status and adherence to the prescribed exemption conditions.

When are Extractive Business Companies Subject to Corporate Tax?

In general, extractive business companies remain outside the scope of corporation tax for their extractive activities, even if they carry out other businesses subject to corporate tax, and are accordingly considered to be dual-status companies for corporation tax purposes, and will fall within the scope of corporation tax to the extent that their income is derived from other businesses.  , except if the other businesses it carries out are businesses that support its extractive activities, or are non-extractive natural resource business activities.

2. Non-Extractive Natural Resource Business Companies

As is the case with other companies, natural resource business companies must meet certain conditions to be included among tax-exempt companies. These conditions are:

  • The company owns or has a direct or indirect interest in a right, concession, or license issued by the local government to conduct non-extractive natural resource business activities.
  • To be effectively subject to tax under the legislation applied in the Emirate, as referred to about extractive works.
  • To notify the Ministry of Finance of its status and compliance with the exemption requirements.

 These companies remain outside the scope of corporate tax even if they engage in other business activities, in which case the provisions applicable to extractive businesses apply to them.

3. Companies wholly Owned by a Tax-Exempt Entity

Tax-exempt entities can establish one or more affiliated companies that they own in whole or in part to carry out their activities or part of them. For example, a qualified investment fund can establish a holding company to own certain assets. Any government entity can also establish affiliated companies to provide administrative support services.

As long as these established companies are fully owned and controlled by a government agency or its affiliates, a qualified investment fund, a public or private pension or social insurance fund, they are not subject to tax if the activities they carry out are limited to the following:

  • Carrying out all or part of the activities of the exempt person, provided that such activities are not related to the taxable activities of the exempt person.
  • Possession of assets or investment of funds for the benefit of the exempt person.

Activities supporting those undertaken by the exempt person.

4. Companies that are Objectively Exempt from Corporate Tax

Cases of substantive exemption from corporate tax are a common mechanism to reduce or avoid economic double taxation, according to a tax system based on residence. This type of exemption is linked to the exemption of certain types of income from corporate tax, including income generated by resident companies from participation shares.  Such as dividends, shares, or capital gains, and also includes expenses incurred in relation to exempt income generated from participation shares. The same applies to income generated by resident companies through a permanent foreign establishment, which could be a branch, presence, or activities.  For companies residing in another country.

The substantive exemption remains related only to the income generated from these businesses not being counted in the taxable income, according to certain conditions and considerations that must be met.

Consult Top Tax Consultants in UAE

To effectively determine corporate tax taxability and exemption in UAE, it is advisable to engage the services of top Tax Consultants in UAE. Thus, contact us today and we shall be glad to assist you.

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