Income Exempted from Corporate Tax in UAE

UAE is a popular destination for businessmen and individuals. Its taxation system is what makes it appealing. The nation provides various fiscal advantages, making it a global business hotspot. This can be observed in the form of the present no-federal taxation system, the low rate of VAT at 5%, and many others. Given that the current taxation system is bound to change with the introduction of corporate tax in the new fiscal year of June 2023, it is important for individuals and businesses to understand the nuances of the same. Through this article, we will explore income exempted from corporate tax in UAE and how that can help individuals and businesses save money. Given below is a list of such incomes that are excludable from taxable income.

List of Income Exempted from UAE Corporate Tax: 

Some sets of businesses and incomes are exempted from UAE corporate tax. Let’s take a look at the income exempted from corporate tax in UAE.

1. Incomes earned by individuals

Incomes earned by an individual in their personal capacity either by means of private or public institutions in the UAE are exempted from corporate tax. This rule is revoked if their source of income requires a commercial license. Such an exemption makes the UAE an attractive location for individuals seeking employment.

2. Foreign Income

Income earned by individuals or businesses outside the UAE is usually not subject to UAE corporate tax. This implies that if you live in the UAE and earn income from a job or business outside the UAE, such income exempted from corporate tax in UAE. This exemption is one of the biggest advantages of living in the UAE.

3. Income from investments

Certain types of income from investments may also be excluded from taxable income. Dividends, capital gains, stock sales, and other forms of income fall into this category. Such an exemption makes the UAE a desirable location for those investors looking to minimise tax owed on their investment income.

4. Income earned from real estate

Income earned by individuals in the dealing of real estate are exempted from UAE corporate tax. This includes the sale, purchase, etc. of real estate.

5. Businesses registered in the free zones

Businesses that are operating in the free zones will not be subject to corporate tax following certain conditions. Such businesses are only required to comply with regulatory requirements and to avoid operating in the mainland UAE. This exemption continues to make the free zones the business hotspots of the UAE.

6. Businesses involved in the extraction of natural resources

Businesses that are involved in the extraction of natural resources do not come under the purview of corporate tax. These businesses will be subject to the rules and regulations laid down by the Emirates and subject to an emirate-based tax.

7. Participation Exemption under the UAE Corporate Tax Law (Article 23)

If a group company pays dividends out of its profits and earns income from the sale of its shares within the tax group, and such income has already been taxed, under the corporate tax law such income will not be subject to tax again.

Participating interest refers to at least 5% or more ownership in the shares of the juridical person or the capital of the juridical person.

8. Foreign Permanent Establishment Exemption under the UAE Corporate Tax Law (Article 24)

A "foreign permanent establishment" refers to the business owned by a resident outside the UAE. A resident can make an election to not consider the income and expenditure associated with such an establishment.

One can ignore the following while calculating the taxable income:

• Losses in Foreign Permanent Establishment:

Any losses incurred by the foreign permanent establishment can be ignored.

• Positive income and associated expenditure:

Any income gained by the foreign permanent establishment and its associated expenditures can be ignored.

• Foreign Tax Credit:

According to Article 47, if there is any foreign tax credit available in case the election was not made.

9. Income earned by non-residents from operating aircraft (Article 25)

According to the conditions set forth in Article 25, income earned by a non-resident via the operation or leasing of an aircraft or ship and other associated equipment for international transport is subject to the exemption, provided that the required conditions are met.

The prescribed conditions are as follows:

The business is engaged in:

• Transporting goods, passengers, merchandise, etc. internationally through sea or air.
• Leasing equipment that is required during international transit via ships or aircraft
• Leasing or chartering aircraft and ships for international transportation.
• Reciprocity of Tax Treatment in the Applicable Jurisdiction

Such an exemption is available to a non-resident for operating ships or aircraft only if it is subject to corporate tax under the applicable legislation in the foreign jurisdiction where the non-resident is a resident individual. 

One should keep in mind that while these incomes are exempted from corporate tax in UAE, there may be certain limitations or specifications depending upon the circumstances.

In conclusion, even with the introduction of a federal taxation system, the UAE continues to attract investors, individuals, and businesses as it is still one of the most attractive nations with an ideal business environment. By ensuring a low tax rate and a number of exemptions, the UAE has managed to keep up its value as a growing business hotspot. Hope you got a clear idea about the income exempted from Corporate Tax in UAE. 

How can CDA help you?

CDA has been providing robust accounting and auditing services to its clients all over UAE for more than a decade. Along with such services, CDA has expertise in providing professional tax consultation services to clients. CDA’s team is well-versed in both the VAT and Corporate tax regimes and is always ready to meet any tax-related needs of the client. CDA’s professionals have studied the new corporate tax regime and have understood all the possible grounds on which the entity can save the tax. If you are confused about the list of income exempted for UAE corporate tax, contact our experts for a better guidance. 

To know more contact the CDA team now.