Under the UAE's Corporate Tax Law, certain organizations are completely exempt from corporate tax. It is vital to distinguish this from being subject to a 0% tax rate.
An Exempt Person is entirely outside the corporate tax system and generally does not need to register or file returns. A Taxable Person is inside the system and must register and file, even if they pay no tax due to the 0% rate on income up to AED 375,000 or through a special status like a Qualifying Free Zone Person.
Categories of Exempt Entities
Exemptions are granted to organizations that serve a public function or are already subject to other specific tax regimes. They fall into two main types: those exempt automatically and those requiring an application or official listing.
Automatic Exemptions
These entities are exempt by their nature without needing to apply to the Federal Tax Authority (FTA).
- Government Entities: The Federal Government, Emirate Governments, and all their departments, agencies, and public institutions are exempt.
- Government-Controlled Entities: Companies that are wholly owned and controlled by a government entity are exempt, provided they are listed in a Cabinet Decision.
- Natural Resource Businesses: Businesses engaged in the extraction and exploitation of the UAE's natural resources (like oil, gas, and stone) are not subject to the federal corporate tax. Instead, they are typically taxed at the Emirate level.
Exemptions Requiring Application or Listing
These entities must meet specific conditions and either be listed in a Cabinet Decision or apply for and receive approval from the FTA.
- Qualifying Public Benefit Entities: These are non-profit organizations established for religious, charitable, scientific, educational, or cultural purposes. To be exempt, they must be listed in Cabinet Decision No. 37 of 2023 and operate exclusively for public welfare without distributing profits.
- Qualifying Investment Funds: An investment fund, including its investment vehicles, can apply to the FTA for an exemption. Therefore, it must satisfy strict conditions related to its regulation, investor base, and primary activities.
- Public or Private Pension and Social Security Funds: These funds are also eligible for an exemption upon application to the FTA, subject to conditions specified in Ministerial Decision No. 115 of 2023.
Exemption vs. 0% Tax Rate: A Clear Comparison
Confusing these statuses is a common mistake. This table shows the main differences.
FAQs About Exempt Entities
What is the main condition for a Public Benefit Entity to be exempt?
The entity must be listed in the relevant Cabinet Decision and operate for public welfare without distributing profits to its members or shareholders.
Are exempt entities also exempt from Value Added Tax (VAT)?
No. The corporate tax exemption is separate from VAT. For instance, an exempt entity may still be required to register for and pay VAT if it makes taxable supplies that exceed the VAT registration threshold.
Can a foreign organization be considered an exempt person?
Generally, exemption applies to UAE-based entities. A foreign company is only subject to UAE corporate tax if it has a permanent establishment in the UAE or derives state-sourced income.
Mostafa is a seasoned Tax Consultant with over 5 years years of experience gained in diverse taxations matters. He has vast expertise in settling tax disputes with the Federal Tax Authority and handling of tax procedures in compliance with tax laws. He is adept in investigating underlying tax intricacies and offering expert tax advisory. He is also well-versed in conducting tax analysis’s and negotiations with the Tax Regulators, upon tax preparation and filing. Mostafa specializes in the areas of Tax law, Auditing, Accounting and Banking law.
