Types of Exempt Persons

Exemptions from Corporate Tax are provided for particular Persons where there are strong public interest and policy justifications for not subjecting them to tax. These Persons are known as “Exempt Persons”.70

Exempt Persons fall into one of four categories:

• Automatically Exempt Persons: Government Entities;
• Exempt if they notify the Ministry of Finance, and meet relevant conditions: Extractive Businesses and Non-Extractive Natural Resource Businesses;
• Exempt if listed in a Cabinet Decision and meet relevant conditions: Government Controlled Entities and Qualifying Public Benefit Entities; and
• Exempt upon application to, and approval by, the FTA:71
o Public and private pension or social security funds;
o Qualifying Investment Funds;
o Juridical persons incorporated in the UAE that are wholly owned and controlled by certain Exempt Persons; and
o Any other Person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister.

If an Exempt Person no longer meets the criteria for exemption, generally, they cease to be an Exempt Person from the beginning of the Tax Period in which they no longer meet the criteria and will be subject to Corporate Tax on all of their Taxable Income.72 In certain temporary and unforeseen circumstances, the Person can make an application to the FTA to continue to be treated as an Exempt Person, despite temporarily not meeting the criteria for exemption.73

Automatically Exempt Persons

This category covers Government Entities which include the Federal Government, Local Governments, government departments, government agencies, authorities and public institutions of the Federal Government or Local Governments.

Government Entities are essentially considered administrative bodies that carry out government functions under the control of the UAE Federal Government or Emirate- level Governments. It is internationally common for a government to exempt its own activities from taxation, as those activities are generally conducted as part of their governmental and public duties.

Government Entities are exempt automatically, meaning that they do not have to apply to the FTA for exempt status as long as they meet the necessary requirements.74

However, a Government Entity shall be subject to Corporate Tax if it conducts a Business or Business Activity under a Licence issued by a Licensing Authority. Any Business or Business Activity conducted by a Government Entity under a Licence issued by a Licensing Authority shall be treated as an independent Business, and the entity will be subject to Corporate Tax in relation to that licensed Business or Business Activity and will be required to register for Corporate Tax.75

Exempt Persons if they notify the Ministry, and meet relevant conditions

This category includes both Extractive Businesses and Non-Extractive Natural Resource Businesses. Where these Businesses meet the relevant conditions, they will be exempt from Corporate Tax.76 Where an Extractive Business or Non-Extractive

Natural Resource Business conducts an independent Business that is not ancillary to its ordinary business and this Business accounts for more than 5% of their total Revenue, it will be required to register with the FTA for Corporate Tax.77

The UAE Constitution considers the Natural Resources in each Emirate to be the public property of that Emirate, and Persons engaged in the extraction and exploitation of Natural Resources are typically subject to some form of Emirate-level taxation. Accordingly, if certain conditions are met, Persons engaged in the Extractive Business and/or Non-Extractive Natural Resource Business are exempt from Corporate Tax.

An Extractive Business involves the activity of exploring, extracting, removing or otherwise producing and exploiting Natural Resources; 78 in the context of the Corporate Tax Law, a Non-Extractive Natural Resource Business involves the steps which take a Natural Resource product from its raw, extracted form to its final point of sale.79

The rules for Non-Extractive Natural Resource Businesses are similar to those for Extractive Businesses. In each case, a Person is exempt from Corporate Tax if they:

• have a right, concession or Licence issued by a Local Government to undertake their Extractive Business or Non-Extractive Natural Resource Business;80
• are effectively subject to tax under the applicable legislation of an Emirate;81 and
• have notified the Ministry of Finance of their Exempt Person status and their compliance with the applicable conditions.82

A Person is considered effectively subject to tax under the applicable legislation of the Emirate if the Local Government imposes a tax on income or profits, a royalty or revenue tax, or any other form of tax, charge, levy or fiscal measures in respect of such Person’s Extractive or Non-Extractive Natural Resource Business.83

Additionally, a Non-Extractive Natural Resource Business must not derive income from Persons outside of the scope of Corporate Tax (e.g. natural persons who do not undertake a Business or Business Activity).84 This limits the exemption to Businesses that engage solely in transactions with other businesses, as opposed to with an end customer or consumer.

Thus, if the Person derives income from any person who is not within the scope of the Corporate Tax Law (e.g. natural persons who do not undertake a Business or Business Activity) or from any other Person that is not a business or other organised entity, this exemption from Corporate Tax will not be available.

Exempt if listed in a Cabinet Decision and meet relevant conditions