Corporate Tax Exemptions and Incentives in UAE: How to Qualify and Apply for Them

In the past few years, the government of UAE has taken several steps to reduce harmful tax practices and align its policies with international standards of tax transparency. A key step in this regard is the introduction of Federal Corporate Tax Laws.

This law has been in effect since June 2023 when the tax rate was decided to be 9% on profits for businesses that make about 375,000 AED. If your profits (revenue minus expenses) are less than this amount the tax rate for you will be at 0%.

Also, keeping in line with the Global Minimum Corporate Tax Agreement, multinational firms making more than EUR 750 million will have to pay a tax of 15% according to the new taxation policy of 2023.

If you are a business owner in UAE, you need to understand the tax laws of the country so that you can avoid adopting harmful tax prices accidentally or on purpose.

Here is all you need to know about corporate tax exemptions in UAE

Corporate Tax Exemptions

For you to be exempt from corporate taxes in UAE, you have to fall into the following categories

1. Automatically Exempt Persons
   In this category, entities like Federal and Local Governments, Agencies, Authorities, and Public Institutions are included. These entities carry out administrative tasks under the UAE Government.

   It is a common international fact that such departments and entities are exempt from any kind of taxation. This is because the roles they fulfill are a part of their public and governmental services and duties. 

   Government departments do not need to apply to the FTA as long as they fulfill the necessary conditions and are not working independently in any manner.

   These entities are subjected to taxation only if they are involved in a business activity under some license issued by the licensing authority in the UAE. Such businesses are considered independent and that makes them subjected to corporate tax laws.

2. Exemption Upon Notifying the Ministry
   

   In this category, both extractive and non-extractive natural resource businesses are included. So long as these businesses notify the relevant ministry and meet the relevant conditions, they will get tax exemptions.

   However, if they engage in some independent business activities that account for more than 5% of their total revenue, they will have to register with FTA.

   The natural resources of the UAE are a public asset and their extraction and exploitation are taxable. However, if these businesses want exemption from tax, they will have to do the following things

   • Notify the FTA of their exemption status and show their compliance with the conditions and regulations.
   • They have to effectively be subjected to tax under UAE legislation if they are eligible.
   • They must possess a valid license issued by the local government to conduct their extractive or non-extractive business.

3. Approved By FDA
   In this category, people with pensions and public or private social security funds are included. Apart from that, certain eligible investment funds and UAE subsidiaries owned by tax-exempt entities are also included.

Qualifying Free Zone Persons (QFZP)

If you fulfill the following requirements, you can become eligible for a 0% corporate tax rate

• If you have been able to ensure a sufficient presence in the United Arab Emirates.
• If your calculation of the qualifying income is based on the criteria defined in the cabinet decision.
• If you are not involved in business activities that makes you liable for a 9% CT rate.
• If you follow the relevant transfer pricing rules and policies.

Qualifying and Applying for Various Corporate Tax Exemptions in UAE

According to Ministerial Decision No. 43 of 2023, the UAE Ministry of Finance has outlined the exemption from tax registration under their corporate law for the following cases.

1. Income Below AED 375,000
   Your business can apply for tax exemption to the FTA if it is earning less than AED 375,000 in a year. If your income falls below this threshold, you will be charged with a 0% CT rate. 

   This frees small businesses from worrying about additional taxes and that helps in fostering economic growth in all sectors.

2. Individual Earnings
   If you are an individual who is not a part of any commercial activity, you can also exempt your earnings from taxation. These exemptions include earnings from interests, dividends, investments in real estate, capital gains, and bank deposits.

   The purpose of this exemption is to encourage individuals to invest more and save without being liable to corporate tax.

3. Some Additional Exemptions
   The 2023 corporate taxation law of UAE exempts you from CT if you are a part of some public benefits entity. This exemption is also applicable if you are earning from pension funds, investment funds, and social security funds. 

   The finance ministry has also announced a tax relief for small businesses with a revenue of about AED 3 million. To claim this relief, the business must adhere to eligibility requirements and follow the standard application process as announced by the finance ministry.

Conclusion

Understanding the corporate tax laws of the UAE can help you adhere to the taxation policies employed by the government. This can also help you identify situations where you are legally exempt from paying 9% tax on your earnings.

If you are not certain about the tax laws of this region but you still wish to start your very own business in the complex market landscape of the UAE then you can seek help from legal advisors, tax consultants, and accountants. This will help you follow all the regulations and conditions that have been put in place by the FTA and the Ministry of Finance in UAE.

It is your duty as a business owner to review your activities and their impact on compliance with UAE corporate tax laws. You also need to maintain accurate documentation and be ready to comply with the new corporate tax laws so that you can save yourself from violations and penalties.