A Deep Dive into Exempt Persons under UAE Corporate Tax Regulations
Corporate tax law provides exemption to some individuals with regard to the payment of corporate taxes in the UAE. Individuals who are given certain exemption from tax privileges are not liable to pay any sort of corporate taxes. These individuals are referred to as ‘Exempt Individuals’. Thus, businesses should seek the advice of tax consultants in UAE to determine their tax liability. The guidelines issued by the UAE government or a taxable person's application can avail this exemption. In this blog, we will cover the exemption given by the government of UAE to ‘Exempt Individuals’.
What are the Categories of Exemption?
Exempt individuals fall under distinct categories. Exemption can either be availed automatically or via submitting the application.
Automatic Exemption from UAE Corporate Tax Law
According to the UAE Corporate Tax Law, some individuals may be exempt from corporate tax automatically. The law expressly states that some groups of people are exempted. A government entity and a government-controlled entity, for instance, are automatically exempt persons under the law. A government entity, qualifying public benefit entity, person engaged in the extractive business and a person engaged in the Non-Extractive Natural Resources Business falls under this category.
Exemption claimed through application
Under the UAE Corporate Tax Law, a Taxable Person may apply to claim exempt status in accordance with the applicable provisions. These organizations are eligible to apply for corporate tax exemptions. After a few requirements are met, the Federal Tax Authority may exempt them from corporate tax upon review of the application. A qualifying investment fund, public pension fund, or a social security fund, or a private pension fund or a social security fund and a juridical person entirely owned and controlled by certain Exempt Persons falls under this category.
Exempted Entities
In the guidelines laid down by the government of UAE, government entities are exempted from paying corporate taxes in UAE. The Decree-Law's provisions will apply to government entities in the event that a business or business activity is carried out under a license granted by the Licensing Authority. A company or business operating under a license from the licensing authority would be considered an independent business, and the government entity would maintain the business's financial statements apart from those of its other operations. Every Tax Period, the relevant authorities would independently compute the taxable income for businesses licensed. Transactions involving licensed businesses and other government entity operations would be regarded as Related Party transactions subject to related party provisions and control laws.
Applicability of exemption
The exemption will be applicable only if the Exempt Person adheres to outlined provisions:
Effective Date
The Taxable Person's application upon approval, the exemption will take effect on the first day of the Tax Period specified in the application, or on any other date that the Federal Tax Authority may specify.
Date of cessation as an Exempt Person
The Exempt Person will no longer be an Exempt Person if it does not adhere to the requirements outlined in the provisions from the start of that particular Tax Period.
Exemption upon Notification to the Ministry and Fulfillment of Conditions
Businesses dealing with extractive and non-extractive natural resources fall under this category of exemption. However, businesses engaging in activities which are not related to its usual operating activities are obliged to register for corporate tax in UAE. As per the UAE Constitution, natural resources are public property. Activities such as resource generation and exploitation, extraction, removal, and exploration are all included in the category of extractive businesses. On the other hand, non-extractive natural resource businesses work on the processes that get raw, extracted natural resource products to where they are finally sold. An individual can be exempted from corporate tax in the following situations:
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If they have a license, right, or concession issued by a local government to engage in their extractive or non-extractive natural resource business.
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Are essentially liable to taxes under the applicable Emirate's laws.
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Have correctly notified the Ministry of Finance of their status as Exempt Persons and their adherence to the requirements.
Exemption from UAE Corporate Tax to Qualifying Public Benefit Organisations
In general, public benefit organizations and charities are essential to social causes in all nations. The rationale is that every nation's government engages in a number of initiatives to better the lives of its citizens. Public benefit organizations that promote public welfare also contribute to the partial resolution of these problems. Therefore, qualifying public benefit organizations are exempt from corporate tax. The importance of these organizations is acknowledged by the UAE government as well. The proposal suggests exempting them from the need to pay corporation tax.
Benefits of Exempt Person Status
There are certain benefits which the exempt person avails. These benefits are:
Tax Exemption
The main benefit which the ‘Exempt Person’ obtains is the exemption from paying corporate tax in UAE. They have a competitive advantage in the market because they are exempt from paying the regular corporate tax rate.
Attracting Foreign Investment
The Exempt Person title, which draws in foreign investors looking for stability and tax benefits, demonstrates the UAE's dedication to promoting a positive business climate.
Promoting Public Listing
The UAE encourages companies to go public by granting Exempt Person status to listed companies, which promotes transparency and liquidity in the stock market.
Supporting Social Initiatives
The incorporation of non-profit organizations and public institutions is consistent with the United Arab Emirates's dedication to social welfare, as it facilitates the more efficient allocation of resources by these entities toward their respective missions.
Entities which do not come under Corporate Tax in UAE
Business entities which are not liable to pay corporate tax in UAE are:
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Small and medium-sized companies with up to AED 375,000 in sales
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Corporate tax and other inducements would be given to the Free Zones repeatedly.
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Companies that are not located on the Mainland would not be impacted.
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Shareholders' dividends and capital gains would not be subject to corporate tax.
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Additionally, changes and transactions between groups would not be subject to corporate tax.
Conclusion
Corporate tax law provides exemption to some individuals with regard to the payment of corporate taxes in the UAE. Exempted individuals need not pay any sort of corporate taxes to conduct their businesses in Dubai. These individuals are referred to as ‘Exempt Individuals Thus, businesses should seek the advice of Dubai tax consultants to determine their tax liability. Our expert team will provide you with authentic and relevant information regarding exemptions on corporate taxes in UAE which will help you in taking an apt decision for your business. Contact us today to get the best consulting advice in the UAE.
