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Which Entities are Exempt from UAE Corporate Tax?

Entities exempt from UAE Corporate Tax enjoy certain privileges under the tax laws established by the Ministry of Finance. Before integrating corporate tax into your business operations, it’s essential to verify if you meet the specific conditions outlined by the Ministry to qualify for exemptions. The Corporate Tax initiative, introduced in January 2022 with a tax rate of 9%, is scheduled for nationwide implementation in June 2023. This timeline affords businesses adequate time to make necessary adjustments and updates to ensure compliance with the upcoming regulations.

Entities exempt from Corporate Tax in the UAE include:

  1. Small and medium-sized businesses with revenue up to AED 375,000.
  2. Free Zones continuing to offer various incentives along with corporate tax exemptions.
  3. Businesses operating exclusively in Free Zones.
  4. Dividends and capital gains received from shareholdings.
  5. Inter-group transactions and reorganizations.

Entities eligible for exemption from UAE Corporate Tax include:

  1. Government entities.
  2. Government-affiliated entities.
  3. Extractive businesses.
  4. Non-extractive natural resource businesses.
  5. Qualifying public benefit entities.
  6. Qualifying investment funds.

However, these entities must meet specific conditions to qualify for corporate tax exemption. For detailed guidelines on complying with the tax law and securing exemption from UAE Corporate Tax, refer to the provided guide for entities.

Here are simplified points regarding the treatment of government entities and affiliated entities under the Corporate Tax Decree Law:

Government Entities:

  1. Exempt from Corporate Tax, and the law’s provisions do not apply to them.
  2. If conducting a business activity under a license, subject to the Decree Law’s provisions.
  3. Maintain separate financial statements for licensed business activities.
  4. Taxable income for licensed business activities calculated independently.
  5. Transactions between licensed businesses and other activities subject to related-party laws.
  6. Must apply to the Authority to be considered a single taxable person.

Government-Affiliated Entities:

  1. Exempt from Corporate Tax, with provisions applicable only to non-mandatory activities.
  2. Maintain separate financial statements for non-mandatory activities.
  3. Taxable income for non-mandatory activities calculated independently.
  4. Transactions related to non-mandatory tasks subject to related-party laws.
  5. Exemptions not applicable to contractors, subcontractors, or producers.

Regarding exemptions from Corporate Tax for persons engaged in Extractive Business:

  1. Exempt if meeting specific conditions issued by the Local Government.
  2. Inheritance of income subject to certain conditions.
  3. No inheritance from supportive businesses if revenue is less than 5% of total revenue.
  4. Taxable income for other businesses calculated independently.
  5. Subject to tax regulations imposed by the Local Government.

For Non-Extractive Natural Resource Business:

  1. Exempt if meeting specific conditions from the Local Government.
  2. Inheritance of income subject to certain conditions.
  3. No inheritance from supportive businesses if revenue is less than 5% of total revenue.
  4. Taxable income for other businesses calculated independently.
  5. Subject to tax regulations imposed by the Local Government.

Qualifying Public Benefit Entities:

  1. Exempt if established and operated for specific purposes.
  2. Engage only in activities related to its established purpose.
  3. Income or assets should not benefit individuals not falling under specific categories.
  4. Additional conditions may apply based on the Cabinet’s decision.
  5. Exemption criteria application specified by the Cabinet.

For Qualifying Investment Funds:

  1. May apply for exemption if meeting specified conditions.
  2. Regulatory supervision and trading requirements must be met.
  3. The primary purpose of the fund should not be tax evasion.
  4. Additional conditions may apply based on the Cabinet’s decision.

 

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