The introduction of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses marked a new era in the UAE’s fiscal policy. While most businesses are now subject to a 9% corporate tax on net profits above AED 375,000, the law also outlines a comprehensive list of entities that are exempt from corporate tax either permanently or conditionally.
This blog explores in detail the categories of exempt persons under UAE Corporate Tax Law and what conditions must be met to maintain this exemption status.
Looking to understand your company’s tax obligations or exemption eligibility? PEAK Business Consultancy Services is a trusted VAT and corporate tax advisor in the UAE, offering customized solutions to ensure full compliance and tax efficiency.
1. Government Entities
All UAE federal and emirate-level government departments, ministries, and authorities are fully exempt from corporate tax. This applies to entities performing sovereign or non-commercial functions.
Example: A ministry managing public education services or road infrastructure is exempt from corporate tax.
2. Government-Controlled Entities
These entities are wholly or partially owned by the government and may be exempt by Cabinet decision. However, they must operate in strategic sectors or national interest areas.
Condition: The exemption must be granted specifically by Cabinet resolution based on a Ministry of Finance recommendation.
3. Extractive Businesses
Companies involved in the extraction of natural resources (oil, gas, minerals) are exempt from corporate tax—provided they are subject to emirate-level taxation.
Condition: A concession agreement with the relevant emirate authority and separate accounting for exempt and taxable activities is mandatory.
4. Non-Extractive Natural Resource Businesses
Entities that work in non-extractive natural resource sectors such as processing raw minerals may also qualify for exemption under similar terms as extractive businesses.
Condition: These companies must be paying royalties or taxes to the emirate under a specific legal framework.
5. Qualifying Public Benefit Entities
Registered charities, public welfare institutions, and nonprofit organizations approved by the UAE Cabinet are exempt from corporate tax.
Examples: Registered foundations supporting education, culture, health, or scientific research.
Condition: These organizations must not engage in substantial commercial activity, and any income should be used for their stated purpose.
6. Pension and Social Security Funds
Both public and private pension funds are exempt from corporate tax in the UAE.
Condition: The fund must be approved by the competent authority and used exclusively for providing pensions or retirement-related benefits.
7. Investment Funds (Qualifying Investment Funds)
Investment funds, including Real Estate Investment Trusts (REITs) and private equity funds, can qualify for exemption if specific criteria are met.
Condition: The fund must be regulated by a competent authority, widely held, and not controlled by a single investor. Passive income such as dividends, capital gains, and interest are typically included.
Uncertain if your investment fund qualifies? PEAK Business Consultancy Services helps assess fund structures, investor thresholds, and FTA filing requirements to secure exemption eligibility.
8. Free Zone Persons (Qualifying Free Zone Persons)
Entities operating in UAE Free Zones can benefit from a 0% corporate tax rate on qualifying income—provided they meet all regulatory and substance requirements.
Qualifying Income Includes:
- Transactions with businesses located outside the UAE
- Income from trading within the same or other Free Zones
- Income from qualifying intellectual property, manufacturing, or logistics
Condition: The Free Zone company must maintain adequate economic substance, submit audited financials, and not conduct mainland business (unless through a taxable branch).
9. Foreign Permanent Establishments
UAE-resident businesses may apply to exclude income from a foreign permanent establishment if it is subject to sufficient taxation in that jurisdiction.
Condition: The exemption is elective and must be supported with evidence of tax paid and separate accounting records.
10. International Agreements and Sovereign Entities
Entities that are eligible for exemption under international treaties (e.g., diplomatic missions, foreign government entities) may also be excluded from corporate tax.
Example: Embassies or trade commissions operating in the UAE under bilateral agreements.
11. Small Business Relief
Though not a permanent exemption, businesses with revenue under AED 3 million can elect for Small Business Relief and pay 0% corporate tax until 2026.
Condition: Total revenue must not exceed the AED 3 million threshold in any tax period during the eligibility window.
Are you eligible for Small Business Relief or Free Zone exemption? PEAK Business Consultancy Services offers one-on-one advisory to help structure your business for maximum tax advantage.
12. Corporate Tax Exemption vs. Zero Rate
It’s important to note that being “exempt” is not the same as being taxed at 0%. An exempt person is not required to register, whereas a 0% tax rate (such as for qualifying Free Zone income) still requires registration, return filing, and compliance.
Tip: Always verify whether your exemption is automatic or conditional based on Cabinet decisions or regulatory frameworks.
Conclusion
The UAE Corporate Tax Law provides a thoughtfully designed list of exempt persons to balance revenue generation with economic competitiveness. However, most exemptions come with eligibility conditions, documentation requirements, and ongoing compliance obligations.
Don’t leave your compliance to chance. Engage PEAK Business Consultancy Services to evaluate your eligibility, apply for exemptions, or restructure your business for optimal tax outcomes. From Free Zone strategies to fund exemptions and small business relief, we help you navigate the corporate tax landscape with clarity and confidence.
