Exempt Persons
[Based on the Public Consultation Document released by the Ministry of Finance, UAE on 28 April 2022.]
The UAE Corporate Tax regime intends to exempt certain Persons from Corporate Tax and has therefore provided that income earned by such persons shall be out of scope for the purpose of Corporate Tax.
1. Government and Government owned entities:
The following government entities will be exempt from UAE Corporate Tax, either automatically or by way of application:-
- The Federal and Emirate governments and their departments, authorities, and other public institutions.
- Wholly Government-owned UAE companies (considered as an extension of the Government), if they carry out the sovereign or mandated activity and are listed in a Cabinet Decision
- UAE subsidiaries of Government-owned companies that undertake » part or whole of the sovereign activity, or» a mandated activity or ancillary activities
can apply for an exemption from UAE Corporate Tax.
Any business activity carried out directly by the Government under a trade license will be within the scope of the UAE Corporate Tax regime.
2. Businesses undertaking production and exploitation of natural resources
Oil, natural gas, water, and deposits of sand and rocks are considered the primary natural resources of the UAE.
Income earned by Government:
Any income/share of income from the extraction and exploitation of natural resources directly earned by the Government, or royalties and other fiscal levies raised by the Government from the extraction or production of natural resources by private sector companies will be outside the scope of the UAE Corporate Tax regime.
Income earned by Private Sector:
- Subject to Emirate-level taxation: Companies that are wholly or partially privately owned and doing extraction and exploitation of natural resources under long-term concession agreements entered into with the respective Emirate Government are subject to Emirate-level taxation. These companies (concession holders) are exempt from the Corporate Tax regime.
- Not subject to Emirate-level taxation: Suppliers, contractors, or subcontractors used by the concession holders shall not be subject to emirate-level taxation and therefore be liable to tax under the Corporate Tax regime
3. Charities and other public benefit organizations that are listed in a Cabinet Decision.
Organizations formed for carrying out social, cultural, religious, charitable, or other public benefit activities, can apply to the Ministry of Finance for exemption from UAE Corporate Tax.
Whether an organization qualifies for a Corporate Tax exemption is at the discretion of the Ministry of Finance. If the application is approved by the Ministry of Finance, the organization
will be listed in a Cabinet Decision and can get the benefit of exemption from UAE Corporate Tax.
Approved charities and public benefit organizations shall be exempt from Corporate Tax, however, they will need to comply with periodic information reporting obligations throughout their existence.
No exemption from UAE Corporate Tax will be available to organizations that undertake commercial activities that are not directly related to their stated purpose, or whose income and donations are/or may be used for the personal gain of persons associated with the organization
(e.g., the founders and fiduciaries).
4. Investment Funds
The UAE Corporate Tax regime intends to treat UAE and foreign investment funds that are structured as unincorporated partnerships as fiscally transparent.
Regulated investment funds and Real Estate Investment Trusts can apply to the Federal Tax Authority (FTA) to be exempt from UAE Corporate Tax.
The main requirements for exemption are as under:
1. The investment fund is regulated by a regulatory authority in the UAE that is recognized by the Ministry of Finance. Eg:
- Securities and Commodities Authority
- Financial Services Regulatory Authority
- Dubai Financial Services Authority
2. No group of five (5) or fewer investors and their Related Parties has a 50% or greater economic interest in the investment fund;
3. No single investor and their Related Parties have 20% or greater economic interest in the investment fund;
4. Interests in the investment fund can be freely traded on a stock exchange in the UAE (or recognized foreign stock exchange) or are widely marketed and made available to the intended categories of investors.
Our comments:
The Corporate Tax regime has given an automatic exemption to Federal and Emirate Government departments and wholly government owned companies and to concession holders who are engaged in business of production and exploitation of natural resources.
Other exempt categories need to apply for the exemption and would be able to enjoy the exemption status only if exemption is granted
