Understanding Exemptions from Corporate Tax in the UAE
In the UAE Corporate Tax (CT) system, an exemption means specific entities or individuals are excluded from paying corporate tax on their income, provided they meet certain criteria.
These exemptions are designed to support strategic sectors and activities while ensuring compliance with the tax framework.
Who is Exempted from Corporate Tax?
- Government Entities: Bodies directly engaged in carrying out government-mandated activities.
- Government-Controlled Entities: Entities wholly owned and operated by the government for specific activities.
- Extractive Businesses: Businesses involved in natural resource extraction, subject to Emirate-level taxation.
- Non-Extractive Natural Resource Businesses: Activities related to natural resources other than extraction.
- Qualifying Public Benefit Entities: Organizations recognized for serving public welfare and listed under a Cabinet Decision.
- Qualifying Investment Funds: Funds meeting specific criteria under UAE regulations.
- Pension and Social Security Funds: Both public and private, subject to regulatory oversight.
- Subsidiaries of Exempt Entities: Wholly owned and controlled UAE subsidiaries of exempt persons.
In some cases, entities must notify the Ministry of Finance (MoF) or apply to and gain approval from the Federal Tax Authority (FTA) to qualify for exemptions.
Small Business Relief
Small businesses with annual revenue of AED 3 million or less can benefit from tax relief until December 31, 2026. This relief includes:
- No Corporate Tax on profits during the relief period.
- Simplified compliance requirements, including reduced transfer pricing documentation.
Entities such as free zone businesses and members of multinational groups with consolidated revenue exceeding AED 3.15 billion are ineligible for this relief.
Qualifying Free Zone Persons
Free zone businesses meeting specific criteria can benefit from a 0% Corporate Tax rate on qualifying income. Eligibility requirements include:
- Maintaining adequate business substance in a UAE free zone.
- Engaging in defined qualifying activities such as manufacturing, reinsurance, or logistics services.
- Complying with transfer pricing rules and preparing audited financial statements under IFRS.
Non-qualifying income is taxed at the standard 9% rate.
Key Takeaways
Exemptions from UAE Corporate Tax support sectors critical to the nation’s economic and social objectives. By understanding eligibility and compliance requirements, businesses can ensure alignment with the framework and take full advantage of available reliefs.
For more details on exemptions and eligibility, visit the Federal Tax Authority website.
