The UAE’s Federal Decree-Law No. 47 of 2022 presents noteworthy changes to corporate and business taxation, effective from June 1, 2023. The new corporate tax regime is probable to amend the tax and compliance obligations for a massive majority of UAE firms. The corporate tax law starts tax obligation and annual compliance requirements for taxpayers and offers releases and exemptions to some explicit categories of businesses that will be subject to 0% tax. Here are the Exempt businesses under corporate tax in UAE.
1.Government Entities
The first category that is exempted from corporate tax in the UAE is Government entities. The Government entities would be pretentious by provisions of the Decree Law if a business activity is led under a License issued by the Licensing Authority.
Such business activities would be treated as an autonomous business, and the Government Entity would keep the financial records separate for the business from other activities. Also, taxable Income would be individualistically calculated every Tax Period for the activities of businesses that are licensed by the related authority.
2.Government-Affiliated Entities
The government affiliated businesses are also exempted from paying corporate tax when they engage in non-commercial activities that are for communal welfare. Government affiliated entities enjoy 0% corporate tax in the UAE. It is important to note that the income generated by such activities is subject to corporate tax if the government or a business owned by the government is involved in commercial activities under a certain trade license.
3.Businesses Engaged in Natural Resource Extraction
Businesses engaged in natural resource extraction can take advantage of exemption from UAE corporate tax that remains subject to Emirates-level corporate tax according to the Federal Decree-Law No. 47 of 2022. To qualify for this exemption;
- A business has to directly or indirectly have an interest in a right, concern, or license issued by a Local Government for Natural Resource extractive procedures.
- It must be efficiently levied under the applicable Emirate’s regulation and alert the Ministry as required.
The net income from extractive operations is charged as per the Emirate’s legislation if a business generates income from both extractive and non-extractive activities. It may lead to potential distinctions in tax rates between Emirates, such as Abu Dhabi and Dubai. It is important to note that income from non-extractive activities falls under standard corporate tax guidelines.
4.Non-Extractive Natural Resource Businesses
Businesses engaged in Non-Extractive Natural Resources also enjoy exemption from corporate tax in the UAE. To qualify for UAE corporate tax exemption, a non-extractive natural resource business has to meet the following conditions as per the Federal Decree-Law No. 47 of 2022 such as;
- The business has either directly or indirectly held an interest in a right, concern, or license. A local government has to issue this approval and allow the business to conduct its non-extractive natural resource actions in the UAE.
- Businesses have to be derived exclusively from persons who undertake a business or business activity.
- The company has to be subject to taxation under the valid regulation of an Emirate.
- The enterprise has to be informed the Ministry in the manner recommended by the local government.
5.Qualifying Investment funds
Investment funds may be suitable for corporate tax exemption if they satisfy the cabinet-stated obligations. These are typically recognized as limited partnerships rather than corporations to ensure impartiality in taxation for their stakeholders.
The Corporate Tax system encourages financial transparency for UAE and foreign investment funds structured as non-incorporated partnerships. It places investors in a parallel tax position as the one subsequent from their straight investment in the underlying assets of the fund.
6.Qualifying Public Benefit Entity
A Qualifying Public Benefit Entity may also be exempted from Corporate Tax under specific conditions such as;
- The entity is involved only in events linked to its recognized purpose, with no business or business activities outside this scope.
- No fragment of its revenue or assets paybacks a shareholder, associate, trustee, or founder, except if they are also a Qualifying Public Benefit Entity, Government Entity, or Government affiliated Entity.
- The entity obeys any exterior conditions set in a Cabinet decision based on the Minister’s approval.
- These exemption standards could be effective from the beginning of the Tax Period in which the Qualifying Public Benefit Entity is registered in the Cabinet decision stated according to the suggestion of the Minister, or any date assessed by the Minister.
Conclusion
It is important to understand UAE’s Federal Decree-Law No. 47 of 2022 corporate tax exemptions for government entities, government affiliated entities, extractive Businesses, Natural Resource sectors, Public Benefit Entities, and Investment Funds. For all-inclusive understanding and tailored counsel, it is recommended to consult professional legal advisors such as Tax Consultant Dubai. Their proficient team can help businesses handle all complications and navigate the process smoothly.
