The advent of company tax UAE has brought about many changes for companies operating inside the united states of america. While corporate profits above AED 375,000 is now taxed at 9%, the UAE corporate tax law affords a few comfort via numerous exemptions and incentives. This article aims to offer an outline of the important thing exemptions and incentives available below the UAE Corporate Tax Law. It explains the types of exempt humans and groups in conjunction with the situations required for availing UAE Corporate Tax Exemptions.
UAE Corporate Tax Exemptions
The following entities are exempt from corporate tax under the Law:
- Government entities: Federal and local government bodies, ministries, agencies, and public institutions are exempt.
- Government-controlled entities (GCTEs): Entities that are directly or indirectly wholly owned and controlled by a government entity are exempt, but only in respect of their mandated activities as specified by the Cabinet. Income from non-mandated business activities will be taxable.
- Extractive businesses: Businesses holding rights/licenses from a local government to undertake extractive operations (e.g. oil, gas) are exempt if they are subject to tax in the relevant Emirate.
- Non-extractive natural resource businesses: Similar exemption for businesses undertaking downstream activities (e.g. refining, storage) of natural resources if they hold relevant rights/licenses and income is derived solely from other businesses.
- Public benefit entities: Entities that meet certain conditions set by the Cabinet pertaining to their public benefit activities (e.g. non-profits, charities) are exempt.
- Investment funds: Funds that pool investor money to acquire investments are exempt if they meet regulations set by the Cabinet.
- Pension/social funds: Public and private pension/social funds regulated by the central bank are exempt.
Entities wholly owned by the above exempt entities conducting similar activities are also exempt. The Cabinet can exempt any other persons based on a ministerial suggestion.
Corporate tax exemptions for free zones in UAE
Free zones offer a 0% corporate tax exemption for Qualifying Income of Qualifying Free Zone Persons, subject to certain substance and economic activity requirements being met on an ongoing basis, which includes:
- A Qualifying Free Zone Person will be subject to a 0% corporate tax rate on its Qualifying Income. Qualifying Income includes income from transactions with other Qualifying Free Zone Persons located in the UAE.
- To qualify for the 0% tax rate, a Free Zone Person must meet certain substance and economic activity requirements as outlined in Cabinet Decision No. 55 of 2023. This includes maintaining adequate substance in a free zone, deriving Qualifying Income, complying with transfer pricing rules, and preparing audited financial statements.
- If a Free Zone Person does not meet the qualifying conditions, it will be subject to the normal 9% corporate tax rate on income that is not Qualifying Income.
- Qualifying Income earned by a Qualifying Free Zone Person from activities or transactions with persons other than Qualifying Free Zone Persons (e.g. with mainland UAE companies) will also be subject to the 9% corporate tax rate.
- A Free Zone Person can elect to be subject to the regular UAE corporate tax regime instead of the Free Zone corporate tax regime. But once this election is made, it cannot be revoked for at least 5 tax periods.
Failure to meet any of the qualifying conditions for more than one tax period will result in the Free Zone Person losing its qualifying status for 5 tax periods.
Table of Contents
Table 1: Corporate Tax Rates
| Type of Entity | Rate on Income up to Threshold | Rate on Income above Threshold |
|---|---|---|
| Local Companies | 0% | 9% |
| Free Zone Companies | 0% | 9% |
Tax incentives for businesses in UAE
The UAE encourage business activity and investment by offering certain tax incentives, which includes:
- Small Business Relief: Small businesses with revenues up to AED 3 million can benefit greatly from the simplified compliance obligations under the Small Business Relief. They will not have to pay any corporate tax, which will ease their administrative burden.
- Participation Exemption: Larger companies can take advantage of incentives like the Participation Exemption, where dividends from subsidiaries and capital gains on shares are tax-exempt, subject to certain ownership and holding period rules.
- Incentives for priority sectors: Priority sectors for the economy, such as industry, healthcare, and education, may receive reduced corporate tax rates or other incentives as the Cabinet approves of.
- Tax credits: Foreign tax credits allow multinationals to avoid double taxation on foreign income.
- Free zones: Qualifying free zones are fully exempt from tax on approved activities, making them very attractive for businesses.
- Accelerated tax depreciation: Finally, accelerated depreciation lets companies write off fixed assets faster, providing more cash flow relief through the tax system.
Overall the UAE corporate tax system aims to promote business and investment.
FAQs
Q1. What exemptions are available under the UAE Corporate Tax Law?
The key exemptions available include government entities, government-controlled entities’ mandated activities, extractive and non-extractive natural resource businesses (if certain criteria are met), public benefit entities, investment funds, pension/social funds, and qualifying income streams of free zone companies.
Q2. Are free zone companies exempt from corporate tax in the UAE?
Free zone companies in the UAE are not automatically exempt from corporate tax. However, they can qualify for a preferential 0% tax rate on ‘Qualifying Income’ under the Free Zone Corporate Tax Regime, if they maintain adequate substance in a free zone and comply with requirements like deriving only qualifying income and preparing audited financials. Failing to meet the conditions will result in taxes being applied at the standard corporate tax rate of 9% on non-qualifying income.
Conclusion
With the implementation of a federal corporate tax regime, the UAE government aims to diversify government revenues while ensuring the tax system supports business growth. The UAE corporate tax law provides various exemptions, incentives and preferential rates which play a key role in advancing this objective by making the UAE an attractive destination for investment and trade. Corporatetaxuae.com, as a leading corporate tax consultant, help businesses understand the exemption criteria and claim applicable reliefs. By ensuring all compliance requirements are met, the team of CTU aims to maximize tax savings for our clients under the UAE’s corporate tax regime.