The UAE has always been a favourite destination for businesses and investors because of its tax-friendly environment and strong economy. For years, businesses have thrived without worrying about corporate taxes. However, with the recent introduction of corporate tax, things have changed slightly to align with global standards and support the country’s growing economy.
The good news? Not all businesses need to pay corporate tax. The UAE government has introduced various exemptions to support free zones, government entities, and other qualifying businesses.
If you’re running a business in the UAE, understanding these exemptions can help you save money, stay compliant, and make the most of what the UAE has to offer.
So, let’s break down everything you need to know about UAE corporate tax exemptions, including who qualifies, what the rules are, and how your business can benefit.
What is Corporate Tax in the UAE?
Corporate tax, also known as business profits tax, is a form of direct tax applied to the profits earned by businesses. In the UAE, corporate tax was introduced to align with global tax practices, promote transparency, and support the country’s economic development goals.
1. UAE Corporate Tax Rates:
- 0%: For taxable income up to AED 375,000.
- 9%: For taxable income exceeding AED 375,000.
2. Taxable Income:
Corporate tax applies to the net profits of businesses, taking into account allowable deductions and expenses.
3. Exemptions and Incentives:
Certain entities and activities are exempt from corporate tax, including:
- Qualifying Free Zone Persons (QFZPs) engaged in qualifying activities.
- Income derived from international trade.
- Income from the extraction and export of natural resources.
- Income from specific financial services.
4. Who is Subject to Corporate Tax?
Corporate tax applies to:
- UAE-based businesses operating on the mainland.
- Free zone businesses earning taxable income outside of qualifying activities.
- Foreign businesses with a permanent establishment in the UAE.
Corporate Tax Exemption in the UAE
UAE Corporate tax exemption refers to the legal exclusion of certain businesses or entities from paying corporate tax on their profits. This exemption is granted based on eligibility criteria, such as the type of business activity, location, or ownership structure.
Entities That Can Benefit from Tax Exemptions in UAE
- Free Zone Businesses: Businesses in free zones with qualifying activities and adherence to economic substance regulations.
- Government Entities: Non-commercial entities owned or operated by the government.
- Charitable and Non-Profit Organizations: Organizations providing public benefit activities and approved by the Federal Tax Authority (FTA).
- Investment Funds: Funds involved in collective investment schemes, subject to specific criteria.
- Small and Medium Enterprises (SMEs): Entities below a certain profit threshold.
Who Qualifies for UAE Tax Exemption?
Businesses or entities that qualify for corporate tax exemption in the UAE include:
1. Businesses in Designated Free Zones
Free zone entities can qualify for a 0% corporate tax rate on income from eligible activities.
Qualifying Conditions:
- They must maintain economic substance requirements, such as having physical office space and relevant resources.
- Revenue must stem from permitted activities like manufacturing, services, or logistics.
- Compliance with regulations issued by the UAE Ministry of Finance is mandatory.
- Any income derived from mainland UAE may be subject to regular corporate tax rates unless it meets specific exemptions.
2. Government Entities
UAE government departments, agencies, and other entities engaged in sovereign functions are exempt from corporate tax. Activities conducted in the public interest fall within this exemption.
3. Government-Controlled Entities
Companies wholly owned by the government that undertake mandated projects or activities are often exempt.
4. Extractive Natural Resource Businesses
Companies involved in oil, gas, and other mineral extraction activities. However, this exemption applies only if they are subject to Emirate-level taxation on their extractive income.
5. Non-Extractive Natural Resource Businesses
These include operations related to the processing, transportation, or refining of natural resources. They may qualify for exemptions if they meet specific regulatory requirements.
6. Charities and Public Benefit Organizations
Non-profit organizations that are officially registered as charities or public benefit entities in the UAE and meet specific criteria. They must not engage in unrelated commercial activities beyond incidental income.
7. Small Businesses (Income Below AED 375,000)
Businesses earning less than AED 375,000 in taxable income are exempt from corporate tax. This exemption supports SMEs, ensuring smaller enterprises can grow without a heavy tax burden. Such businesses must still file returns but won’t be taxed if their income stays under this threshold.
8. Investment Funds
Funds like Real Estate Investment Trusts (REITs) and qualifying investment vehicles are often exempt. They must meet conditions like transparency, beneficial ownership, and regulatory compliance.
9. Personal and Individual Income
Salaries, dividends, capital gains, and other personal income unrelated to business activities remain untaxed. This ensures that individuals are not subjected to corporate tax unless engaging in business activities.
Documents Required to Apply for Corporate Tax Exemptions in the UAE
To apply for UAE corporate tax exemptions, businesses typically need to submit the following documents:
- Certificate of Incorporation
- Trade license
- Audited financial statements
- Proof of income
- Proof of eligibility (Free zone status, government ownership, or charitable purpose)
- Other relevant documents (as required by the tax authorities)
How to Apply for Corporate Tax Exemption in UAE?
Applying for UAE corporate tax exemptions involves a clear process that ensures eligible businesses and entities can benefit from the exemptions while staying compliant with the country’s tax regulations. Here’s a step-by-step guide:
1. Determine Eligibility
Before starting the application process, confirm if your business qualifies for a corporate tax exemption. Eligibility depends on factors such as:
- Business type (e.g., free zone entity, charitable organization).
- Activities undertaken by the business.
- Ownership structure (e.g., government-owned).
2. Register with the Federal Tax Authority (FTA)
All businesses in the UAE, including those eligible for tax exemption, must register with the FTA. Complete the corporate tax registration process online through the FTA portal. Submit the required details and documents as part of the registration.
3. Submit an Application for Exemption
After registration, submit a formal application for corporate tax exemption through the FTA portal or the relevant free zone authority. Ensure your application includes:
- All supporting documents.
- A detailed explanation of your business activities and how they align with exemption criteria.
4. Review and Approval
Once submitted, the FTA or the respective authority will review your application. The review process typically involves verification of documents and evaluation of compliance with regulations.
5. Receive Confirmation of Exemption
If approved, you will receive confirmation of your corporate tax-exempt status. Retain this document as it may be required for future compliance checks or renewals.
6. Maintain Compliance
To retain your tax-exempt status, ensure:
- Regular submission of audited financial statements.
- Adherence to economic substance regulations, if applicable.
- Prompt reporting of any changes in business structure or activities.
Maximize Savings with Shuraa Tax
Understanding UAE corporate tax exemptions can make a big difference for your business. These exemptions help you save money, stay competitive, and focus on growing your company in one of the world’s most business-friendly environments.
If you think your business might qualify for a corporate tax exemption, now is the time to explore your options. Taking advantage of these exemptions can help you cut costs and keep your operations smooth and compliant.
At Shuraa Tax, we’re here to make the process easy for you. Our team of friendly and experienced accountants, auditors, and tax advisors can guide you through every step—from checking your eligibility to filing the paperwork and staying compliant.
Let us handle the tax side of things so you can focus on running your business. Contact Shuraa Tax today at +971 508912062 or info@shuraatax.com, and we’ll help you get started.
