With the groundbreaking declaration that the UAE is set to introduce a new federal corporate tax system from or after 1 June 2023, the tax realm of the country underwent yet another change. The new corporate tax regime is expected to alter the tax and compliance requirements for a vast majority of UAE firms. The CT law establishes tax obligation and annual compliance requirements for taxpayers and offers reliefs and exemptions to certain categories of businesses that will be subject to 0% tax. In this article, we discuss the UAE corporate tax-exempted parties and excluded incomes and their applicability to foreign companies.
Which Entities are exempted from the Corporate Tax in UAE?
Due to their significance and contribution to the community and economy of the UAE, certain categories of organizations are exempt from UAE corporate tax.
Companies that Extract Natural Resources
The constitution of the UAE states that the owner of a natural resource is the Emirate where it is situated. Therefore, revenue derived from the exploitation of natural resources, in addition to royalties and other taxes are not subject to the new CT regime but are instead subject to emirate-level taxation.
Government and Government-controlled Companies
The government and businesses it controls are exempt from paying corporate tax when they participate in non-commercial activities that are for social welfare. The revenue generated by such activities is subject to corporate tax if the government or a business owned by the government engages in commercial activities under a trade license.
Investment funds are typically established as limited partnerships instead of corporations to ensure fairness in taxation for their investors. For UAE and foreign investment funds structured as non-incorporated partnerships, the CT system promotes financial transparency, placing investors in a similar tax position as the one resulting from their direct investment in the underlying assets of the fund. These funds may qualify for corporate tax exemption if they satisfy the cabinet-stated requirements.
Government-run or Regulated Private Social Security and Retirement Pension Schemes
All public interest foundations or groups established for charitable reasons or civic development, including private and public retirement pensions, social security funds, charities, etc., are exempt from paying corporate tax in Dubai.
NGOs (non-profits) and PBOs (public benefit organizations)
NGOs and PBOs are exempt from corporate tax if they are founded and run as a professional organization, chamber of commerce, or other similar organization that exists solely to advance societal welfare, and its activities, income, and assets are solely used to accomplish the objectives for which they were created.
Income Exempted from UAE Corporate Tax
Companies with headquarters in the UAE will be charged CT on all of their revenue, including capital gains. The CT regime will, however, exempt some types of revenue from taxation to prevent instances of double taxation.
Exemption for Dividends and Capital Gains
As a UAE corporate shareholder, you can enjoy exemptions from corporate tax on dividends collected and capital gains made from the sale of shares of a subsidiary business. The proposed CT regime also exempts domestic dividends generated by UAE businesses. And if you meet certain requirements outlined by the cabinet, you can receive dividends from foreign corporations and capital gains from the sale of shares in both UAE and foreign corporations without being subject to CT.
- Having an ownership interest of at least 5% in the foreign business for a continuous 12-month period.
- Corporate tax or an equivalent tax with a minimum rate of 9% is levied against the overseas company.
- Ownership interests or entitlements that wouldn't have qualified for an exemption if owned directly by a taxable Person make up no more than 50% of the assets of participation.
Foreign Permanent Establishment (PE) Exemption
UAE companies with overseas subsidiaries are eligible for two types of foreign branch profit exemption:
(i) Invoke a foreign tax credit for taxes paid in the nation where the overseas branch is located, or
(ii) Request an exemption for the profits from the overseas branches.
Non-Resident operating Aircraft or Ships
The UAE CT regime exempts income derived by a non-resident from operating or leasing ships or aircraft used in international transportation, so long as a UAE business is also afforded the same tax treatment in the relevant foreign jurisdiction under the reciprocity principle.
How can the CDA Tax Professionals Assist You?
As a renowned corporate tax advisor in Dubai, we have a team of professionals with extensive knowledge of tax advisory services. Regardless of your status as a legal entity or an individual, CDA experts can handle your business needs and provide the necessary support to help you become corporate tax ready in UAE. We can guide you with information regarding tax exclusions and taxable persons. Get in touch with us right away for proficient tax guidance services from seasoned tax professionals in the UAE.