Exempt Persons: Corporate Tax UAE

Who is Exempt?

There are certain sectors that are given the exemption from the obligation of corporate tax in UAE, mainly due to their importance and the positive impact they have on our society and economy. This is merely to encourage such activities/businesses by minimizing any financial or any regulatory burden unless they conduct an activity that falls within the scope of the Corporate tax law in the UAE. As a result, they gain an exemption from any registration, filing, or any other requirement imposed by the corporate tax law in UAE.

These include the following sectors as defined by Article 4 of the Corporate tax law:

A Business Activity is defined by the Decree-Law as, “any transaction or activity, or series of transactions or series of activities conducted by a Person in the course of its Business”.

Let us look into the detail of each exempt category/Activity.

Automatically exempt.

These are the entities which are automatically exempted from the corporate tax law without any conditions.

1. Government and Government-Controlled Entities:

   All Government-owned and controlled entities are specifically exempt from the obligations of corporate tax unless they conduct a business activity under a license issued by a Licensing Authority or an activity that is not its ‘Mandated Activity’.

Exempt if notified to the Ministry of Finance and (subject to meeting certain conditions)

There are the businesses which are Exempt if notified to the Ministry of Finance and are subject to meeting certain conditions, for each category.

1. Extractive Businesses:

   There are conditions that need to be met for an extractive business to gain the exemption, including:

   1. It should directly or indirectly hold or is interested in a right, concession, or License issued by a Local Government to undertake its Extractive Business.
   2. Is effectively subject to tax under the applicable legislation of an Emirate[i].
   3. Has notified the Ministry in the form and manner agreed with the Local Government.

   Now once the Business has met the above requirements, their income from the Extractive Business or any other activity ancillary or incidental to that Person’s Extractive Business and the Revenue of such other Business in a Tax Period will be exempt from the corporate tax, unless a business activity is conducted which falls within the scope of Corporate tax.

   Contractors, subcontractors, suppliers, connected to the Extractive Business: The exemption under this Article does not apply to contractors, subcontractors, suppliers, or any other Person used or contemplated to be used in any part of the performance of the Extractive Business that does not in its own right meet the conditions to be exempt from Corporate Tax.

2. Non-Extractive Natural Resource Businesses:

   Just like other exempt persons, there are conditions that need to be met for a Non-Extractive Natural Resource Business to gain the exemption from corporate tax, including:

   1. It Should directly or indirectly hold or is interested in a right, concession, or License issued by a Local Government to undertake its Non-Extractive Natural Resource Business.
   2. The Person’s income (from its Non-Extractive Natural Resource Business) is derived solely from Persons that undertake a Business or Business Activity.
   3. Is effectively subject to tax under the applicable legislation of an Emirate[ii].
   4. Has notified the Ministry in the form and manner agreed with the Local Government.

   Now that the Business has met the above requirements, their income from the Non-Extractive Natural Resource Business or any other activity ancillary or incidental to that Person’s Non-Extractive Natural Resource Business and the Revenue of such other Business in a Tax Period (given that the Revenue of such other Business in a Tax Period does not exceed 5% (five percent) of the total Revenue of that Person in the same Tax Period), will be exempt from the corporate tax, unless a business activity is conducted which falls within the scope of corporate tax.

   Extractive Natural Resource Business and the Revenue of such other Business in a Tax Period (given that the Revenue of such other Business in a Tax Period does not exceed 5% (five percent) of the total Revenue of that Person in the same Tax Period), will be exempt from the corporate tax, unless a business activity is conducted which falls within the scope of corporate tax.

   Contractors, subcontractors, and suppliers, connected to the Non-Extractive Natural Resource Business: The exemption under this Article shall not apply to contractors, subcontractors, suppliers, or any other Person used or contemplated to be used in any part of the performance of the Non- Extractive Natural Resource Business that does not in its own right meet the conditions to be exempt from Corporate Tax.

• A Business Activity conducted by Exempt Persons:

  In case any of the above-mentioned exempt Persons conduct a business activity which does not meet the exemption criteria and is subject to corporate tax as per the Decree-Law, these business activities will be considered separate from the exempt entity itself and will be considered an independent business. Resultantly, the person shall comply with all related Corporate tax obligations for these business activities, which include:

  1. Maintaining Financial statements and book of Accounts separately from the Exempt business.
  2. Calculate the Taxable Income for its Business or Business Activity in accordance with the provisions of Federal Decree-Law No. 47.
  3. For Non-Extractive Natural Resources business: Any common expenditure shared between the Non-Extractive Natural Resource Business and other Business of the Person shall be apportioned in proportion to their Revenue in a Tax Period, unless such expenditure is taken into account in a different proportion to calculate the tax payable by the Person under the applicable legislation of the relevant Emirate in respect of its Non-Extractive Natural Resource Business, in which case the expenditure will be apportioned in the latter proportion.

  Transactions between the Business or Business Activity and the other activities of the Exempt business shall be considered Related Party transactions, subject to the provisions of Article 34 of Federal Decree-Law No. 47.

Exempt if listed in a Cabinet Decision

This exemption will only be fulfilled if any of the following conditions are listed in a cabinet decision.

1. Qualifying Public Benefit Entity:

   A Qualifying Public Benefit Entity shall be exempt from Corporate Tax where all the following conditions are met[iii]:

   1. It is established and operated for any of the following:
      1. exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational, healthcare, environmental, humanitarian, animal protection or other similar purposes.
      2. As a professional entity, chamber of commerce, or a similar entity operated exclusively to promote social welfare or public benefit.
   2. It does not conduct a Business or Business Activity except for activities that directly relate to or are aimed at fulfilling the purpose for which the entity was established.
   3. Its income or assets are used exclusively in the furtherance of the purpose it was established or for the payment of any associated necessary and reasonable expenditure incurred.
   4. No part of its income or assets is payable to, or otherwise available, for the personal benefit of any shareholder, member, trustee, founder, or settlor that is not a Qualifying Public Benefit Entity, Government Entity or Government Controlled Entity. 
   5. Any other conditions as may be prescribed in a decision issued by the Cabinet at the suggestion of the Minister.

Exempt if applied to and approved by the Federal Tax Authority (and subject to meeting certain conditions)

This exemption is applicable when an entity has applied to and is approved by the FTA.

1. Qualifying Investment Fund:

   The Decree-Law defines a Qualifying Investment Fund as: “Any entity whose principal activity is the issuing of investment interests to raise funds or pool investor funds or establish a joint investment fund with the aim of enabling the holder of such an investment interest to benefit from the profits or gains from the entity’s acquisition, holding, management or disposal of investments, in accordance with the applicable legislation and when it meets the conditions set out in Article 10 of this Decree-Law.”

   An investment fund may apply to the Authority to be exempt from Corporate Tax as a Qualifying Investment Fund where all the following conditions are met[iv](Article 10 of the Decree-Law):

   1. The investment fund or the investment fund’s manager is subject to the regulatory oversight of a competent authority in the State, or a foreign competent authority recognized for this Article.
   2. Interests in the investment fund are traded on a Recognized Stock Exchange or are marketed and made available sufficiently widely to investors.
   3. The principal purpose of the investment fund is not to avoid Corporate Tax.
   4. Any other conditions as may be prescribed in a decision issued by the Cabinet at the suggestion of the Minister.

Investment Manager Exemption

An Investment Manager shall be considered an independent agent when acting on behalf of a Non-Resident Person, where all the following conditions are met:

1. The Investment Manager is engaged in providing investment management or brokerage services.
2. The Investment Manager is subject to the regulatory oversight of the competent authority in the State.
3. The transactions are carried out in the ordinary course of the Investment Manager’s Business.
4. The Investment Manager acts in relation to the transactions independently.
5. The Investment Manager transacts on an arm’s length basis with the Non-Resident Person and receives due compensation for the provision of services.
6. The Investment Manager is not the Non-Resident Person’s representative in the State in relation to any other income or transaction subject to Corporate Tax for the same Tax Period.
7. Any other conditions as may be prescribed in a decision issued by the Cabinet at the suggestion of the Minister.

In context to the Investment Manager Exemption criteria mentioned above, “transactions” means any of the following:

1. Transactions in commodities, real property, bonds, shares, derivatives, or securities of any other description.
2. Transactions of buying or selling foreign currency or placing funds at interest.
3. Such other transactions permissible to be carried out by the Investment Manager on behalf of a Non-Resident Person under the applicable legislation of the State.