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Post By: admin February 22 2024

Exempted Persons under CT law Why Are They Exempt?

In the intricate landscape of the UAE's taxation system, businesses need to navigate the complexities of Corporate Tax (CT) to ensure compliance and optimize tax liabilities. However, not all entities find themselves under the tax bracket, which is why understanding the nuances of exemptions is paramount for businesses aiming to thrive in this dynamic economy. In this blog, we will delve into the realm of exempted persons under the UAE CT and explore the reasons behind their exemption.

What is a Corporate Tax Exemption?

A corporate tax exemption is a legal provision that allows specific organizations to eliminate or reduce their tax liability on all or a portion of their income. Tax exemptions are meant to encourage certain economic activities and investments that result in job creation and the overall economic expansion of a country. In the UAE, several persons are exempt from corporate tax, which can take place in one of the four ways. Let’s discuss it in detail below:

  • Automatic Exemption 

Government entities 

A government entity enjoys an inherent exemption from corporate tax in UAE. This privilege stems from the nature of their operations, which predominantly involve the fulfilment of governmental and public responsibilities.

  • Exempt if notified to the Ministry of Finance

Extractive Businesses and Non-Extractive Natural Resource Businesses

Extractive businesses and non-extractive natural resource businesses are exempt from corporate tax because they play a vital role in fueling the economy. Exempting them from paying taxes allows them to reinvest their profits in further exploration, development, and sustainable practices. However, to claim an exemption, these businesses must adhere to specific conditions, such as subjecting their taxable income to an Emirate-level tax, a separate levy set by individual Emirates.

  • Exempt if listed in the Cabinet Decision

Qualifying Public Benefit Entities and Government-Controlled Entities

Non-profit organizations or public benefit entities, driven by their commitment to serving the community, fall under the category of exempted persons. These entities work solely for the benefit of the public, and taxing these entities would diminish their capacity to fulfil their altruistic missions, making their exemption a strategic move to support the greater good. 

Government controlled entities can be referred to as juridical persons, which are either directly or indirectly owned and controlled wholly by any of the government entities listed within a cabinet decision. Certain entities will be exempt if listed in the decision; otherwise, they are subjective to certain conditions 

  • Exemption Claimed through Application

Qualifying Investment Funds

In line with the UAE's dedication to fostering financial markets, investment funds meeting specific criteria are exempt from CT. This includes:

  1. The fund must be regulated by a competent authority in the state.
  2. The fund's interests should be traded on a recognized stock exchange or made available for trading through other means.
  3. The fund's primary purpose should not be tax avoidance.
  4. Any additional conditions specified by the Minister.

Public or Private Social Security Funds

A public pension or social security fund, or a private pension or social security fund that is subject to the regulatory oversight of the competent authority in the state, is exempt from the corporate tax, once it's applied to and approved by the Federal Tax Authority.

Wholly-Owned and Controlled Subsidiaries of Exempt Organizations in the UAE

If an exempt organization fully owns and controls a subsidiary in the UAE, that subsidiary is also exempt from CT. However, certain conditions must be followed by the subsidiary, including:

  1. The subsidiary is responsible for undertaking part or all of the exempt organization's activities.
  2. The subsidiary’s sole purpose is to hold assets or invest funds on behalf of the exempt person.
  3. The subsidiary only carries out operations that complement those that the exempt person does.

Why Are Some Entities Exempted?

Understanding the rationale behind the exemptions of specific entities from the obligation to pay CT is crucial for businesses seeking to navigate the taxation landscape seamlessly. The reason behind exempting certain entities is rooted primarily in the avoidance of double taxation on the same income, as it can be economically burdensome and hinder business operations.

CDA-as your Tax consultant

In the dynamic world of taxation, the UAE's Corporate Tax system strategically exempts certain entities to foster fairness and support the broader economic landscape. As businesses navigate this intricate terrain, understanding these regulations and exemptions becomes paramount for businesses aiming to thrive. This is where CDA - a leading accounting and auditing company in Dubai, stands as your trusted partner in navigating the intricate realm of UAE taxation. Our experts specialize in interpreting and implementing tax regulations, ensuring that your business not only remains compliant but also optimizes tax liabilities, contributing to your sustained success in this dynamic business environment.

Approach our experts for a FREE CONSULTATION today.