Corporate Tax Exemptions in the UAE
Now, we all know that the UAE has a Corporate Tax. Many business owners and individuals are reviewing their tax position to ensure they are entitled to the benefits of Corporate Tax. While the standard corporate tax rate in the UAE is 9%, the Corporate Tax Law provides specific exemptions for certain individuals, income streams, and structures, allowing entities to avail of a 0% tax benefit as well.
However, understanding these exemptions correctly is really important. Any misinterpretation can lead to incorrect filings, penalties, or loss of benefits.
In this blog, we explain the Corporate Tax exemptions in the UAE, who qualifies for the same, the legal basis, and with practical examples.
Disclaimer: The examples and entities mentioned in this blog are fictional and used solely for educational purposes only.
Legal Framework for Corporate Tax Exemptions
As we know the Corporate Tax exemptions are governed by:
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Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses
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Relevant Cabinet Decisions and Ministerial Decisions
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FTA Public Clarifications and Guides
These exemptions are specific and conditional, which means they are not automatically applied to all accounts.
Who Is Exempt from Corporate Tax in the UAE?
The common question among people is who is EXEMPTED from Corporate Tax! The answer to it is:
1️ Government Entities
Government entities and wholly government-owned entities may be exempt if they meet conditions prescribed by the Cabinet.
Examples include:
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Federal and Emirate-level authorities
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Entities carrying out sovereign or public functions
P.S.: Commercial activities conducted outside the approved scope may still be taxable under the UAE Corporate Tax.
2️ Government Controlled Entities (Approved List)
There are certain government-controlled entities, and these are exempted only if listed by Cabinet Decision.
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Exemption applies only to specified activities
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Income outside approved activities may be taxable
3️ Extractive and Non-Extractive Natural Resource Businesses
Businesses that are engaged in the following activities are exempted to the extent they are subject to the Emirate-level taxation.
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Oil, gas, minerals, and natural resource extraction
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Related non-extractive activities
To highlight, this exemption is given to avoid double taxation between the federal and Emirate regimes.
4️ Public Benefit Entities
Also, entities operating for public or charitable purposes may qualify for exemption if:
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They are listed or approved by the Cabinet
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Activities are genuinely non-profit
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Income is used for approved objectives
Like:
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Charitable foundations
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Approved educational or social institutions
5️ Qualifying Investment Funds
Certain investment funds are exempted, considering that they satisfy the conditions, such as:
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Being regulated
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Meeting ownership diversification criteria
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Distributing income appropriately
This exemption supports the UAE’s position as a global investment hub.
6️ Pension Funds and Social Security Funds
The following funds may be exempted as well:
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Government pension funds
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Private pension or retirement funds
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Social security funds
However, the conditions will have to be qualified for applying:
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Purpose of the fund
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Beneficiaries
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Regulatory oversight
7️ Income Exemptions (Not Entity-Level)
If we understand rightly, even taxable persons may enjoy income-based exemptions, including:
Participation Exemption
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Dividends from qualifying shareholdings
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Capital gains from the disposal of a qualifying participation
Conditions apply regarding:
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Minimum ownership
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Holding period
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Subject-to-tax tests
Foreign Permanent Establishment (PE) Exemption
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Income from foreign branches may be exempt if elected
Are Free Zone Companies Automatically Exempt?
Definitely No, there isn’t anything called an automatic exemption. Especially, Free Zone companies are not exempt by default. They may benefit from:
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0% Corporate Tax on Qualifying Income
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Only if they qualify as a Qualifying Free Zone Person (QFZP)
This is not an exemption, but a preferential tax rate subject to conditions being met.
Practical Examples
Example 1 – Exempt Investment Income
A UAE holding company receives dividends from a foreign subsidiary meeting participation conditions.
The Dividend income will be exempted from Corporate Tax
Example 2 – Government-Owned Entity
A government-controlled logistics company earns income outside its approved activity list.
Any government-controlled entity that has approved income may be exempted and any other income may be taxable at 9%.
Example 3 – Extractive Business
An oil exploration company is taxed at the Emirate level.
Yes, these lines of business activities are exempted from federal Corporate Tax on that income
Common Mistakes Businesses Make
Some of the common mistakes that business owners make are:
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Assuming Free Zone status qualifies for exemption
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Ignoring conditions attached to exemptions
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Not maintaining documentation
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Applying exemptions without FTA confirmation
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Mixing exempt and taxable activities
Key Takeaways
To sum up, let us make a note:
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Corporate Tax exemptions are specific and conditional
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Not all income of exempt entities is automatically exempt
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Free Zone benefit does not mean the same as an exemption
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Documentation and compliance are critical
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Incorrect exemption claims can trigger penalties
How Flyingcolour Tax Consultant Can Help?
We assist businesses with:
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Corporate Tax exemption assessment
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Free Zone vs Mainland structuring
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Participation exemption analysis
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FTA registrations and filings
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Audit-ready documentation
Frequently Asked Questions (FAQs)
1 Are all government entities exempt from UAE Corporate Tax?
Not at all. Only qualifying government entities and approved government-controlled entities are exempt from the UAE Corporate Tax.
2 Are Free Zone companies exempt from Corporate Tax?
Of course, NO. The free zone companies may enjoy 0% tax benefit on their qualifying income but are not treated as exempted entities.
3 Is dividend income always exempt under UAE Corporate Tax?
Not always, only if the dividend income qualifies for the conditions of participation exemption.
4 Do exempt entities need to register for Corporate Tax?
Yes, registration and ongoing compliance is still be required for all entities in the UAE.
5 Can exemptions be withdrawn by the FTA?
Certainly yes, if conditions are breached or activities changed the FTA has the right to withdraw the given benefits.
To learn more about Corporate Tax Exemptions in the UAE: Who Is Exempt and How It Works, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.