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UAE announces list of entities exempted from corporate tax

A non-resident person will also not be required to register

The UAE’s Ministry of Finance on Monday announced exemptions for entities and non-resident persons from registration for corporate tax, which will come into effect from June 1, 2023.

The UAE last year announced that it would levy a nine per cent corporate tax on companies and freelancers earning Dh375,000 and above, hence, requiring them to enrol for tax registration. The UAE’s corporate tax will be one of the lowest in the world.

As per a statement issued by the Ministry of Finance on Monday, government entities, government-controlled entities, as well as extractive businesses and non-extractive natural resource businesses that meet the necessary conditions under the corporate tax law have been exempted and not required to register.

Moreover, a non-resident person is also not required to register if he only earns UAE-sourced income and does not have a permanent establishment in the UAE.

The UAE has announced a raft of measures, of late, ahead of the introduction of corporate tax. Last week, the Ministry announced relief for small and micro businesses, startups and freelancers under Ministerial Decision No. 73 of 2023 which specifies that businesses and individuals with revenues of Dh3 million or less can benefit from the Small Business Relief initiative as it is intended to support start-ups and other small businesses by reducing their corporate tax burden and compliance costs.

“Any company that is non-resident and does not have a permanent establishment in the UAE will not be required to register or pay UAE corporate tax. In addition, government-controlled businesses, natural resource businesses, and other organisations such as pensions and investment funds will also not be required to register under the UAE corporate tax law,” said James Swallow, commercial director, PRO Partner Group.

He said these exemptions are very much in line with best practices on corporate tax across the world.

“We expect further announcements and clarifications over the coming days and weeks as companies prepare to embrace the new UAE corporate tax regime,” he said.

Citing an example, Anurag Chaturvedi, CEO, Andersen UAE, said if an Indian entity earns royalty income from a UAE entity for giving the right to use the trademark in UAE, it is not required to obtain corporate tax registration as it derives only UAE-sourced income.

“However, if the Indian entity has a representative office in UAE from which it arranges to earn profits, it will be required to obtain corporate tax registration as a representative office constitutes a permanent establishment of Indian entity in UAE,” he said.

The Ministry of Finance added that these entities have been exempted from registration as they’re not subject to nine per cent corporate tax until they meet the exemption conditions under the federal law.

Andersen UAE's chief executive further elaborated that a government entity or government-controlled entity will be required to register for corporate tax if it carries out business activities beyond its capacity or apart from its mandated activities.

Sandeep Anand, head of A&A Associate Accounting, said today’s announcement provided more clarity about consultants and artists based outside of the UAE.

“A foreign consultant is defined as a non-resident person providing online consulting services to clients in the state without having a physical office or any employees. Likewise, a foreign artist can create and sell artwork online to customers in the UAE. The income derived by such people would be considered generating state-sourced income without having a permanent establishment, are tax exempt and such persons are not required to register,” said Anand.

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