Exempted Individuals/companies for corporate Tax in UAE

Corporate tax is a tax charged by the government on a company's profit. Corporate tax exemption is a legal provision allowing certain businesses to reduce or eliminate taxes under set conditions. Corporate tax exemptions play a crucial role in helping companies lower their taxable income to promote investment, boost economic growth, or meet certain policy objectives. These exclusions can consist of deductions for particular costs, exceptions for earnings from focused sectors, or rewards such as tax breaks for doing business in specific areas. They play a crucial role in reducing businesses' tax obligations, ultimately boosting their profits and enabling them to invest in expanding their operations. Governments strategically utilize these exemptions to encourage foreign investment and promote innovation within their economies.

Why are Corporate Tax Exemptions Granted?

Governments provide corporate tax exemption for economic, social, and policy purposes. These include attracting investment, innovation, strategic growth in the industry, and developing backward areas. Governments' reduction or exemption of tax liability from certain entities is an attraction of foreign business, an increase in employment opportunities, and a promotion of economic stability. This exemption also aligns with the greater fiscal strategy in strengthening competitiveness and making long-term development.

Benefits of Corporate Tax Exemption in UAE

• Cost Savings for Businesses: The tax exemptions make the financial burden of a company lower, so it saves the profits for further reinvestments in growth, expansions, or innovations
• Fuel for Innovation: Tax relief on financial burdens motivates companies to invest more in newly designed technologies, research, and development.
• A Magnet for Global Investment: Tax exemptions attract foreign businesses to this region, strengthen the economy locally, and help develop relationships worldwide.
• Boosting Local Economies: Taxes exempted in any region stimulate regional economic development and create jobs by encouraging businesses to operate there.
• A Lifeline for Startups: Tax relief affords new firms every opportunity to live and grow in very high and competitive markets.
• Stand out in Competitive Markets: With reduced costs, businesses can end up offering lower prices and an edge in the marketplace.

Who is Eligible for Corporate Tax Exemption in UAE?

Mostly, corporate taxes are exempted in the UAE for businesses that provide specific targets toward contributing to economic development, attracting foreign investment, and being innovative. Such exemptions are typically granted to the following types of entities:

• Small and Medium Enterprises (SMEs): SMEs in the UAE are entitled to many tax incentives, hence encouraging entrepreneurship and innovation.
• Regulatory Compliance: Only businesses that meet the requirements and are bound by all aspects of the UAE local legal and regulatory framework, including the aspect of financial reporting, will qualify for these exemptions.
• Government Entities: All government departments and institutions governed by the government are exempt from paying corporate tax.
• Specific Sectors: Businesses in the targeted sectors such as the technologies sector, renewable energy, the media, and manufacturing sector are eligible for corporate tax exemptions that can add value to the diversification of the UAE's economy
• Qualifying Free Zone Persons: The companies registered in free zones can receive tax-exempt benefits or special reduced tax in the UAE if they meet some relevant requirements concerning the activities and income of those companies.
• Foreign-Owned Businesses: The free zones in the UAE have been offering corporate tax exemptions to foreign-owned firms, especially 100 percent owned by non-UAE nationals.
• Pension and Social Security Funds: Public and private pension funds and social security organizations are exempted from corporate tax.
• Extractive and Non-Extractive Natural Resource Businesses: Companies engaged in extraction-linked oil, gas, and mineral sectors are also exempt from corporate tax; however, the company must notify the Ministry of Finance for such exemption.
• Non-Profit Organizations Focused on Public Welfare: Charitable entities that render healthcare, educational services, or other similar services toward public welfare can be exempted if they submit and the exemption is granted to their application.
• Regulated Investment Funds: Most investment structures, like REITs and other regulated funds, are exempt from corporate taxes if they meet specific regulatory requirements.

Discover additional insights on Exempt Income Under the UAE Corporate Tax Blog

Corporate Tax Exemption Criteria and Conditions

To qualify for corporate tax exemptions in the UAE, businesses must meet specific criteria outlined by the Corporate Tax Law. Below are the essential conditions for exemption eligibility:

• Public Benefit Focus: The entity formed must be for public welfare purposes, like in business sectors of education, health, charity, or other social services.
• Compliance with Laws: The organization has to follow all the federal and local laws applicable to it, and it should always maintain its exempt status by complying.
• Notification of Changes: The entity should notify the Ministry of Finance concerning any status change with a possibility of affecting its entitlement to exemption
• Tax Registration: Registration with the Federal Tax Authority to acquire a tax registration number.
• Ongoing Eligibility: The entity must meet the reporting requirement to ensure that it continues to qualify for an exemption.

Application Process for Corporate Tax Exemption in UAE

1. Confirm Eligibility:

• Determine whether the enterprise qualifies for corporate tax exemption. The qualifying businesses involved may include Government, Free Zone businesses, extractive industries, and non-profit organizations among others.
• You should check against the Corporate Tax Law to ascertain whether your activity is included in the exempt category.

2. Gather Required Documentation

• Prepare such documents, including proof of operation of the business, registration details, and other compliance with legal requirements. This could include business licenses, financial statements, and other relevant records.

3. Complete the Application

• Submit the exemption request through the Federal Tax Authority (FTA) portal or the appropriate registration channel as advised by the Ministry of Finance.
• Describe in detail any business activities and why they should be considered exempt.

4. Submit to the Ministry of Finance or FTA

• Send the accomplished application form and supporting documents to the Ministry of Finance for verification or forward them directly to the Federal Tax Authority (FTA).
• In other cases, the companies may be forced to register with the  FTA to find out their status on the exemption.

5. Await Approval

• The submission will be reviewed by either the Ministry of Finance or FTA. Once endorsed, confirmation with further instructions on compliance or reporting will be received.
• If your business doesn't qualify under specific requirements, you might be asked to provide additional documentation or resubmit an application.

6. Maintain Compliance

• After approval, your business should always demonstrate that it meets the eligibility criteria for exemption. Maintain and submit the records required by the Ministry of Finance or FTA at regular intervals to maintain the exempted status.

Penalties for Non-Compliance

The UAE Ministry of Finance has set out penalties against non-compliance with corporate tax exemption and related obligations, with the purpose of encouraging compliance with the country's corporate tax law. Such penalties are applied in the event of failure to register under the corporate tax, in the case of delayed submissions of tax, or failure to keep a record of relevant taxation.

• Late Corporate Tax Registration: Any organization not registered for corporate tax before the deadline is liable to be penalized AED 10,000.
• Late Filing of Tax Returns: If a business enterprise's corporate tax return is not filed in time, then some penalty for delayed submission may be imposed.
• Failure to Maintain Records: A business is supposed to maintain proper records for tax purposes. Failure to do that results in fines or penalties for failure to comply.

Requirements and Compliance for Entities Qualifying for Corporate Tax Exemption

Entities qualifying for corporate tax exemption in the UAE have to meet some conditions and requirements for continuing compliance. A few examples are:

• Government Entities and Public Institutions: Generally, the institutions that are qualified for these exemptions are the federal government and its controlled entities. These institutions don't have to register for corporate tax because, in general, they exempt themselves from the tax laws of countries provided that they satisfy the exemption requirements.
• Public Benefit Entities: Charity organizations dealing in public welfare, such as the promotion of philanthropy, education, culture, or charitable activities, would be exempted from taxes if they are shown to be beneficial to the public and the government. They should comply with federal law along with local laws and provide necessary documents, such as notice of major changes in their status.

In exempted bodies, compliance encompasses such actions as registering with the Federal Tax Authority conforming to report and declare continuously, and ensuring that they still meet the requirements of the Corporate Tax Law set as per conditions. The operational status change of an exempted body shall be reported to the Ministry of Finance.

How Reyson Badger Can Assist?

Reyson Badger can assist businesses and individuals in navigating corporate tax exemptions by offering specialized services tailored to the UAE’s tax regulations. Here’s how Reyson Badger can provide valuable support:

• Corporate Tax Registration: Keep valid registration with the Federal Tax Authority and allow for compliance.
• Corporate Tax Planning: Provide strategic advisory on the best way to maximize the exemptions available.
• Corporate Tax for Freezone: Easy guidance on eligibility and managing exempt income
• Corporate Tax Audit & Reporting: Helps in record management for compliance at the time of audit.
• Corporate Tax Exemption Guidance: Support the determination of eligibility for tax exemption and potential for exemption in corporate taxation.
• Corporate Tax Exempt Income Handling: This advice guides you on the best ways to handle exempted income streams such as salary and rental income.

Reyson Badger also provides individualized support to make sure that businesses, as well as individuals, remain compliant yet are able to enjoy tax exemption benefits.