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Personnel can be divided into taxable persons, tax-exempt persons and outsiders
By considering the scope of the United Arab Emirates (UAE) Corporate Tax Law (the “Law” or “UAE CT Law”); these persons can be classified as taxable persons, tax-exempt persons and outsiders. In our previous articles we covered both resident and non-resident taxpayers and in this article we discuss who is exempt from the UAE CT law.
Government Entities and Government-Controlled Entities
Under the law, a government entity includes the federal government, local government, government departments, government agencies, authorities and public bodies of the federal government or local government. Any legal person that is wholly owned and controlled, directly or indirectly, by a government entity is legally defined as a government-controlled entity.
Income of government entities carrying out non-commercial activities for public social benefit is exempt from CT, and income of government-controlled entities is exempt from tax if these entities carry out authorized activities.
If a government entity or government-controlled entity engaged in any commercial activity engages in activities not authorized by a trade license, such entity will be subject to the provisions of the law.
Business activities of government entities and activities for which government-controlled entities are not authorized; will be considered separate and independent businesses. These entities must prepare separate financial statements for the segment. Calculate the taxable income of the division and assume the tax liability related thereto.
Extractive and non-extractive natural resources business
Extractive industries include activities that explore for, mine, remove or otherwise produce and exploit natural resources in the UAE; non-extractive natural resource businesses include activities that separate, treat, refine, process, store, transport, market or distribute natural resources in the UAE .
The legal provisions do not apply to extractive and non-extractive natural resource businesses as they are taxed at the emirate level and have local government rights, concessions or licenses to carry out such operations in their respective emirates. To fall under the exempt category, the person concerned must have notified the Ministry of Finance (MoF). For non-extractive natural resource businesses, in addition to the above, income must be derived only from persons engaged in the business or business activities.
If such enterprises are engaged in any business activity other than extractive and non-extractive natural resource operations, income from other business activities will be taxed at the federal level and such enterprises will be obliged to prepare separate financial statements. Common expenses will be split between the two businesses based on revenue unless there is another appropriate basis. Transactions between these businesses will be treated as transactions between related parties. However, other businesses are considered ancillary if the income from the other business accounts for up to 5% of the person’s gross income.
Qualified non-profit organizations
A qualifying public benefit entity is established for the benefit of the public and, except in occasional circumstances, does not engage in commercial activities for profit, so income from a qualifying public benefit entity is exempt if the entity is established and operated exclusively for religious purposes , charitable, scientific, artistic, cultural, sporting, educational, healthcare, environmental, humanitarian, animal protection or other similar purposes, such as the advancement of social welfare or the public interest. It is mandatory that an entity shall not carry on business or business activities unless the primary purpose is necessary and its income or assets may only be used to further its primary purpose. In addition, no income or assets may be provided or paid for the personal benefit of any shareholder member, trustee, founder, or settlor other than a qualifying public benefit entity, government entity, or government-controlled entity.
Qualified Investment Fund
Investment funds raise funds from investors, pool them and invest them in various fields. The core objective of investment funds is to earn profits for investors. The principal activity of an investment fund is to acquire, hold, manage or dispose of investments.
An investment fund may apply to the FTA for an exemption from CT as a qualified investment fund if the investment fund or the investment fund manager is regulated by a competent authority, the interests in the investment fund are traded on a recognized stock exchange or are marketed and offered to investors sufficiently broadly, and The main purpose of investing in funds is not to avoid CT.
pension and social security funds
Pension and social security funds, whether private or public, can claim exemption from CT if the fund is regulated by the competent UAE authorities and meets the conditions set by the Ministry of Finance.
legal person
Any limited liability company, publicly held company, public stock company, or any other legal person wholly owned and controlled by a government entity, government-controlled entity, qualified investment fund, pension fund, or social security fund listed above may apply if it engages in or supports these activities of exempt persons or the holding of assets or investment funds exclusively for the benefit of such exempt persons are exempt from CT.
Any other person who may be identified in a decision issued by Cabinet on the advice of the MoF may apply for exemption from CT.
As mentioned above, government entities, government-controlled entities, extractive enterprises, non-extractive natural resource enterprises, and qualified public welfare entities are exempt from consumption tax after meeting the conditions, while the above-mentioned other persons need to apply to the FTA for exemption from CT.
Mahar Afzal is the Managing Partner of Kress Cooper Management Consultants. The above is not official, but the author’s personal opinion based on the UAE corporate tax law. For any questions/clarifications please write to him: compliance@kresscooper.com.
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