Exempt Persons Under UAE Corporate Tax: Categories and Conditions

Article 4 of the Corporate Tax Law (CTL) sets out the categories of Exempt Persons and the conditions each one must meet to hold that status. These include government entities, government controlled entities carrying out mandated activities, qualifying public benefit entities, qualifying investment funds, pension and social security funds, and juridical persons wholly owned by exempt entities. Some categories are exempt automatically, some require listing in a Cabinet Decision, and some require approval from the Federal Tax Authority. Ministerial Decision No. 43 of 2023 sets out a separate list of entities excused from the registration requirement under Article 51, which is not the same as being exempt from tax itself. Taxable Persons who are unsure which category applies to them should speak to a qualified Tax Consultant in the UAE to confirm their status and stay compliant.

Categories of Exempt Persons Under UAE Corporate Tax

• UAE Federal and Emirate Governments
• Government-Owned Companies
• Natural Resource Businesses
• Qualifying Public Benefit Entities
• Qualifying Investment Funds
• Public or Private Pension/Social Security Funds
• Juridical Persons Controlled by UAE Exempt Entities
• Charities/Public Benefit Organizations
• Foreign Charities/Public Benefit Organizations

Entities Automatically Exempt From Corporate Tax

These automatic exempt entities underscore the UAE’s commitment to fostering a supportive environment for essential public services, strategic government projects, and social welfare initiatives. By relieving these entities from corporate tax obligations, the UAE ensures that their financial resources are directed towards fulfilling their core missions, whether it be public administration, infrastructure development, or social welfare. The following entities are included in this automatic exemption:

• The Federal and Emirates UAE Governments with Public Institutions: In this type of exemption, governmental institutions, including ministries, related departments, and public institutions are covered. The rationale is that these entities are not profit-driven and their functions are essential for the administration and service delivery within the country. Exempting them from corporate tax helps ensure that public resources are not diverted from their primary purposes.
• Government-owned Companies Engaged in Mandated Activities: Companies that are wholly owned and controlled by the government and carry out specific mandated activities are also exempt. These companies are listed in a Cabinet Decision, which outlines the activities considered essential for public welfare or economic stability. For example, companies involved in infrastructure development, healthcare services, or educational services might fall under this category. The exemption helps these companies focus on their public service mandate without the financial burden of corporate taxation.
• Businesses Involved in Extraction of UAE Natural Resources: Companies involved in the extraction of natural resources of the UAE, as well as related non-extractive businesses, are subjected to Emirate-level taxation and not the federal corporate tax. This policy recognizes the unique contributions of the natural resources sector to the national economy and ensures that taxation at the emirate level adequately supports local economic development.
• Qualifying Public Benefit Entities: Such entities are incorporated to promote social benefit and public welfare or enlisted in Cabinet Decision No. 37/2023 or any related decisions. These entities include charities, non-profits, and other organizations that operate exclusively for social welfare purposes. By exempting these entities from corporate tax, the government encourages philanthropic activities and the provision of essential services to underserved populations.

Entities Exempt From Corporate Tax Upon FTA Approval

Under UAE Corporate Tax, certain other entities can gain exemption upon approval by the Federal Tax Authority (FTA). This approval-based exemption mechanism allows for a more tailored approach to tax relief, ensuring that entities contributing significantly to the economy or society receive the necessary support. The following entities are eligible for such exemptions upon meeting specific conditions and obtaining approval:

• Qualifying Investment Funds: Investment funds that meet prescribed conditions can apply for exemption. Such funds normally comprise mutual funds, hedge funds, and private equity funds where a number of investors pool their finances with the aim of collectively purchasing securities and other assets. The conditions for exemption often revolve around regulatory compliance, investment structure, and the purpose of the fund. By exempting qualifying investment funds from corporate tax, the UAE aims to attract foreign and domestic investment, enhance capital markets, and support economic growth.
• Public or Private Pension/Social Security Funds: Public and private pension funds, as well as social security funds, can also apply for exemption. These funds are established to manage retirement savings and provide financial security to retired individuals or beneficiaries of end-of-service gratuity payments. Ministerial Decision No. 115/2023 outlines the specific conditions these funds must meet to qualify for exemption. The exemption ensures that contributions and investment earnings within these funds are maximized for the benefit of pensioners and beneficiaries, without being eroded by corporate taxes.

UAE Juridical Persons Wholly Owned by Exempt Entities

Commercial companies entirely and exclusively owned and controlled by certain exempt entities that are juridical persons in the UAE may apply for exemption if they engage in activities listed in the Corporate Tax Law. This provision typically covers subsidiaries or special purpose vehicles created by exempt entities to carry out specific projects or functions. The exemption ensures that the tax benefits extended to the parent exempt entity are not negated by corporate tax obligations on their subsidiaries, thereby maintaining the financial integrity and operational efficiency of the entire organizational structure. The approval process involves registering for Corporate Tax, submitting an application to the FTA, and demonstrating compliance with the relevant conditions. Once approved, these entities can operate without the financial burden of corporate taxes, allowing them to focus on their core objectives. This targeted exemption policy ensures that entities crucial to the economic and social fabric of the UAE receive the necessary tax relief to thrive and contribute effectively to national development.

Charities and Public Benefit Organizations

Charitable and public benefit organizations are entities that help society and address social issues, and the UAE Corporate Tax Law offers tax relief for such organizations subject to certain criteria. Organizations that can apply include non-profits, foundations, and trusts, though they must have their activities restricted to public benefit and distribute any excess income for that purpose. To get out of the tax, organizations must apply to the Federal Tax Authority, meet the conditions stated in Cabinet Decision No. 37 of 2023, and satisfy the requirements set out thereafter. These organizations accept donations, and donors are provided with tax exemptions, thus boosting philanthropy and funding for charities. This policy enhances the sustainability and viability of non-profit organizations, which in turn supports social stability and development.

Conditions That Can Affect Your Exempt Status

Qualifying as an Exempt Person is not always permanent, and the conditions attached to each category matter as much as the category itself.

Extractive and non-extractive natural resource businesses lose part of their exemption if they take on work outside their usual operations. Once income from an unrelated venture passes 5% of total revenue, that portion of the business must register and pay Corporate Tax on it. The exemption also only covers dealings with other businesses. Income earned from individuals or entities that do not qualify as a business under the Corporate Tax Law falls outside the exemption.

Government Controlled Entities are only exempt on their Mandated Activities, meaning the specific functions listed in the Cabinet Decision that governs them. Any activity outside that mandate is treated as an ordinary taxable business.

Exempt status can also end. Under Ministerial Decision No. 105 of 2023, an entity stops being treated as exempt from the Tax Period in which it no longer meets the conditions for its category. Where the change happened for reasons outside the entity’s control, it can apply to the Federal Tax Authority to keep its exempt status rather than losing it right away.

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Mostafa Mansour

Meet Mostafa on Corporate Tax UAE. A seasoned consultant with 5+ years of expertise in FTA dispute settlements, tax advisory, and regulatory negotiations.