Which Entities are exempted from UAE Corporate Tax?
Due to new regulations, the UAE has introduced a corporate tax to help it become a leading global hub for business and investment. At a 9% rate, the UAE corporate tax is one of the lowest in the world, which will make the country a competitor in this regard. The UAE’s corporate tax will take effect from June 1, 2023.
Under these circumstances, businesses in the UAE should review their tax obligations and prepare in advance by consulting with local tax consultants in Dubai. Tax consultants can tell a business whether or not they fall under the ambit of corporate tax in the UAE.
What is Dubai Corporate Tax?
Corporate Tax (CT) is a direct tax imposed on corporations and other entities based on their net income or profit from their operations. Some countries refer to this as Corporate Income Tax (CIT) or Business Profits Tax.
According to the announcement of the MoF of the UAE, from 1 June 2023 onwards, a new corporate tax system will be implemented in the UAE. In addition to Bahrain, the UAE has the lowest corporate income tax rate in the GCC region at 9%.
Which Entities are exempted from UAE Corporate Tax?
The UAE government has published a document in the form of consultation, detailing which entities will be subject to the UAE corporate tax and which entities are exempt. This article explores in detail the types of organizations that are exempt from corporate tax in the UAE.
Companies that Extract Natural Resources
Money that comes from the extraction and exploitation of natural resources such as income and profits is not subject to UAE VAT, as well as royalties and other taxes imposed by the government that comes from the extraction or production of natural resources by private companies. Oil and natural gas companies, on the other hand, exploit their activities with long-term agreements from the governments of the relevant emirates.
As a result, such companies are subject to Emirate-level taxation. The UAE corporate tax regime recognizes such long-term contracts and exempts income earned by companies subject to Emirate-level taxation. Nonetheless, this exemption doesn’t apply to any suppliers, contractors, or subcontractors your company may be using. Consult with tax consultants in Dubai to make sure your company is eligible for this exemption.
Government-controlled & Government companies
Government-controlled companies, which have a turnover of less than AED 1.8 billion, and Government companies are exempt from paying corporate tax for their first 5 years. After that period is over, these companies can apply to pay corporate tax at 50% of the normal rate (or 75% if they meet certain criteria). This exemption is restricted to private sector companies owned by a foreign government or holding company. You might ask how you can tell if a company is government-controlled; generally speaking, you should consider it government-controlled if it’s listed on any Dubai exchange (e.g., Dubai Financial Market or NASDAQ Dubai) and it meets one of these two conditions
Usually, investment funds are structured as limited partnerships rather than corporations to allow investors to enjoy the benefits of limited taxation. The corporate tax system regards U.A.E. and international investment funds structured as unincorporated partnerships as tax neutral. This places investors in a comparable tax position to if they had invested directly in the fund’s underlying assets.
If they meet certain criteria, they are eligible to ask the FTA for exemption from the corporate tax system. You can work with Dubai tax advisors to seek a company tax exemption.
Private and Government retirement pension and social security funds
These entities may not pay any corporate tax in Dubai. Exemptions to paying corporate tax also extend to subsidiaries of investment companies, private and government retirement pensions, social security funds, and charities. Companies that earn income from foreign sources: According to Article 24 of UAE Federal Decree No. (6) of 2011, a firm that earns more than 50 percent of its income from non-locals is exempt from paying corporate tax in Dubai. However, firms earning over AED 200 million ($53 million) or having over 500 employees should still pay their annual fees each year. Non-profit entities established by law: These bodies including public interest foundations or associations set up for charitable purposes or civic development will be exempt from paying taxes in Dubai.
Non-profits/Charities and Public Benefit Organizations (PBOs)
Not-for-profit entities do not pay corporate tax. In many cases, non-profits and charities can make up for their lack of profit with tax breaks. Public Benefit Organizations (PBOs) are also not liable for the corporate tax but they have a very specific definition to meet; they must have been registered in the Emirate of Abu Dhabi or Dubai before January 1, 2018, and must provide a service that benefits society (like utilities or charity), and cannot be funded by any governmental entity.
Choose the Best corporate Tax Consultants in Dubai, UAE
Several business entities qualify for exemption from paying corporate tax in the United Arab Emirates. This can be very advantageous to owners and shareholders, as it allows them to keep more profits in their pockets. If you’re looking to start a new company in Dubai or one of its neighboring emirates, contact “Aviaan Accounting” for a corporate tax consultation to get some information on which entity you should choose and why. Good luck!
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