• Home
• /
• Business

What are the persons that would be exempt from corporate tax in the UAE

The legal persons who are incorporated in the UAE or controlled and managed from the UAE, their worldwide income would be subject to corporate tax

The individuals who are conducting any commercial activity which requires a licence or permit from authorities, the UAE source income of such individuals would be subject to corporate tax (CT). The legal persons who are incorporated in the UAE or controlled and managed from the UAE, their worldwide income would be subject to CT. The businesses which are incorporated out of the UAE, their UAE source income would be subject to CT if these businesses have permanent establishments in the UAE or earn any UAE source income.

The income of Limited and general partnerships or other unincorporated joint ventures (JVs) and associations of persons (AoP), where the liability of any of the partners is not unlimited (means fully limited partnership), would be taxable in the hands of the partners or the members only. Otherwise, such partnerships, JVs and AoP would be treated like a UAE company. The income from cross-border unincorporated partnerships would generally follow the same tax treatment of the partnership like in the respective foreign jurisdictions.

The above are the general rules for the application of the CT, but there are some exceptions, and the following persons would be exempt from corporate tax.

Government and government-owned entities: The income of the government and government-owned entities that are carrying out non-commercial activities for the social and welfare of the public would be exempt from CT. If the government and/or its entities are carrying out any business activities for commercial purposes under the trade license, the income of the government and such entities would be subject to CT.

Natural resources: Under the constitution of the UAE, the natural resources belong to the Emirate where the resources are found, and the companies involved in the extraction of natural resources, sign an agreement with the respective Emirate for the extraction of natural resources, and such companies pay taxation at the Emirates level. The CT, being a federal tax, would not be applied to the income earned by companies engaged in the extraction and exploitation of natural resources that are subject to tax at the Emirate-level.

Charities and public benefit organisations: Charities and public benefit organisations share responsibility with the government for the promotion of social or public welfare, or communal or group interests. If these organisations are involved in such activities, they would apply for an exemption to the Ministry of Finance from CT. If the application is approved, the organisation would be listed in a Cabinet Decision, and its income would be exempt from CT. Where such organisations undertake commercial activities for the personal gain of the persons associated with the organisations, then the income of such organisations would be subject to CT.

Investment funds: Investment funds are usually structured as limited partnerships instead of corporate entities to ensure tax neutrality for their investors. The CT regime intends to treat UAE and foreign investment funds that are structured as unincorporated partnerships as fiscally transparent which would put investors in the funds in a similar tax position as if they had invested directly in the underlying assets of the fund.

The regulated investment funds and real estate investment trusts can apply to the Federal Tax Authority (FTA) to be exempt from CT upon meeting the following requirements:

• The fund is regulated by the regulatory authority like the securities and commodities authority, the financial services regulatory authority, the Dubai financial services authority etc.

• The fund is recognised by the Ministry of Finance.

• The group of five or fewer investors and their related parties do not have fifty per cent or more economic interest in the fund.

• Single investor and their related parties do not have more than twenty per cent economic interest in the fund.

• The interests in the funds can be freely traded on the UAE stock exchange, or on the regulated foreign stock exchange or widely marketed and are available for the intended investors.

Public and regulated private social security and retirement pension funds are also exempt from the CT.

Based on the above criteria, the persons need to assess their status and proceed further accordingly to have proper implementation of the corporate tax, where applicable.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above is not an official but a personal opinion of the writer based on the public consultation document on corporate tax. For any queries/clarifications, please write to him at compliance@kresscooper.com.