UAE Corporate Tax Exemptions & Excluded Incomes Guide

UAE Corporate Tax Exempted Parties & Excluded Incomes

The UAE government announced a new corporate tax regime set to start on or after June 1, 2023. Every business must know which entities are exempt from corporate tax in UAE, which incomes are excluded, and how the rules apply to foreign companies. This article explains the exemptions under the new CT regime.

Which Entities Are Exempted from Corporate Tax in UAE?

Some organizations do not pay corporate tax because of their role in society and their importance in the UAE economy. The law lists these as exempted parties.

1. Companies That Extract Natural Resources

The UAE constitution states that each emirate owns its natural resources. Income from extracting oil, gas, or minerals is taxed by the emirate, not by federal corporate tax. Royalties and related taxes stay outside the new CT regime.

2. Government and Government-controlled Companies

The UAE exempts government bodies and companies they control if these do only non-commercial or social activities. If such an organization starts a commercial activity under a trade license, it must pay tax on that part only.

3. Investment Funds

Investment funds usually form as limited partnerships, not corporations, to keep taxes fair for investors. Both UAE and foreign investment funds may get tax exemption if they meet cabinet requirements. The rules put investors in the same position as if they held assets directly.

4. Social Security & Pension Schemes

Government-run or regulated pension and social security funds, both private and public, do not pay corporate tax. This includes charities, retirement funds, and civic groups that serve public interest.

5. NGOs and Public Benefit Organizations (PBOs)

NGOs, PBOs, and similar bodies are exempt if their purpose is public benefit, charity, or civic work, and if they use all income and assets for those goals. Professional organizations and chambers of commerce can also be exempt if they meet these rules.

What Incomes Are Excluded from UAE Corporate Tax?

Not all company income is taxed under the UAE corporate tax law. The following incomes are excluded to prevent double taxation and encourage investment:

Exemption for Dividends and Capital Gains

• UAE companies do not pay corporate tax on dividends from local or foreign companies, if they hold at least 5% ownership for 12 months.
• Capital gains from selling shares can be exempt, if the same conditions apply.
• Domestic dividends between UAE companies are always exempt.

Foreign Permanent Establishment (PE) Exemption

• If a UAE company owns a foreign branch, it can choose to either:
  • Claim a credit for foreign taxes paid, or
  • Ask for a full exemption for profits from the foreign branch, as per UAE law.

Non-resident Aircraft or Ship Operators

• If a non-resident company earns income from operating or leasing ships and aircraft in international transport, it does not pay UAE corporate tax. This rule only applies if the other country gives UAE businesses the same treatment.

Table: Quick Look at Exempted Entities & Excluded Incomes

How Mubarak Al Ketbi (MAK) Auditing Can Help

Every company wants to stay on the right side of the law, and sometimes tax can seem like a hard nut to crack! Mubarak Al Ketbi (MAK) Auditing gives expert help for tax exemption, compliance, and understanding excluded incomes. We can:

• Explain tax exemptions for your entity
• Guide you with documentation for exemption status
• Support you with foreign branch income treatment
• Advise on charity, NGO, and fund registration for exemption

For more information:

• Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
• Or contact/WhatsApp: +971 50 276 2132