UAE reveals list of entities exempted from corporate tax

The UAE Ministry of Finance has released details of public and private sector organisations that are exempted from tax registration for the new corporate tax that will be levied starting June 1, 2023.

The ministerial decision on the exception from tax registration, which was issued under Article 51 of the Corporate Tax Law, sets out who would be excluded from registering for corporate tax in the UAE.

The finance ministry said government entities, government-controlled entities, as well as extractive businesses and non-extractive natural resource businesses that meet the necessary conditions under the corporate tax law are exempted and not required to register.

Ministry of Finance issues decision on exception from registration for corporate tax purposes #WamNews https://t.co/pgOSUdgocy pic.twitter.com/CDsWCunIot

— WAM English (@WAMNEWS_ENG) April 10, 2023

Similarly, the authority is exempting non-resident persons from registering for corporate tax if they “only” earn UAE-sourced income and do not have a permanent establishment in the country.

“The exception stipulated in the decision is in line with international best practices,” the Ministry of Finance said in a statement. Other exemptions are available to organisations such as pension or investment funds and public benefit organisations.

The UAE is also exempting existing free zone entities from corporate tax as they are among the drivers of the country’s non-oil economy.

UAE corporate tax exemptions

Meanwhile, the UAE government has announced a raft of measures ahead of the introduction of corporate tax in June.

Last week, the UAE finance ministry issued a new ministerial decision on Small Business Relief, allowing small businesses with revenues of $816,880 (Dhs3m) or less to claim tax relief in a tax period when their revenue does not exceed a certain threshold.

Small Business Relief seeks to support startups and other small or micro businesses by reducing their corporate tax burden and compliance costs. It was issued in accordance with Article 21 of the corporate tax law, “which treats the taxable person as not having derived any taxable income in a given tax period where the revenue did not exceed a certain threshold.”

Read: UAE to offer corporate tax relief to small businesses

The new scheme stipulates that taxable persons who are residents of the UAE can claim Small Business Relief when their revenue in the relevant and previous tax periods is below Dhs3m for each period. Once a taxable person exceeds the revenue threshold in any tax period, then the tax relief will no longer be available, said the Ministry of Finance.

The revenue threshold will apply to tax periods starting on or after June 1, 2023, and will only continue to apply to subsequent tax periods that end before or on December 31, 2026. The authorities highlighted that small businesses’ revenue will be determined based on the applicable accounting standards accepted in the country.

Structural reforms

The UAE announced that it will impose a federal levy on corporate earnings in January 2022, dismantling a tax-free regime that’s made it a magnet for global business.

The government also issued the federal corporate tax law, bringing the income of companies exceeding Dhs375,000 into the corporate tax bracket in December 2022. However, Moody’s said in February 2022 that the UAE’s corporate tax will broaden the government’s income base, but it negatively affects the credit profiles of companies operating in the Middle East business hub.

The introduction of corporate tax law in the UAE is part of the country’s broad strategies that are aimed at aligning the country with new international standards, particularly the move toward a global minimum tax on multinational corporations endorsed by the G20 countries in 2021.

Read: UAE’s FTA starts pre-registration for corporate tax through EmaraTax, open to select firms

The UAE Federal Tax Authority opened early registration for corporate tax through EmaraTax, the country’s digital tax services platform in January.