Summary of UAE Exempt Person Tax Legislation and Its Impacts

UAE Corporate Tax (CT) will become effective for many businesses from 1 January 2024, and there are many things to consider to prepare for implementation. These include understanding the CT implications of your legal, financial, and operational profile and planning the people, processes, and systems required to comply with the rules.

Corporate Tax Base

The CT Law provides for the following statutory tax rates:

The CT Law does not guide applying Pillar Two in a domestic context. However, the Corporate Tax FAQs indicate that multinationals will be subject to CT

under the regular UAE CT regime until the UAE adopts the Pillar Two rules. Please refer to

our comments under the “International tax developments - Pillar Two” section.

The CT Law also includes relief for small businesses whereby a small business may?

be treated as not having derived Taxable Income for a Tax Period. This election is subject to

a revenue threshold and other requirements, which will be set out in a subsequent

Cabinet Decision.

Exempt persons

The following Persons are exempt from UAE CT:

Government Entity

Federal and local government entities like departments, agencies, ministries, and public institutions are usually not subject to corporate tax in the UAE. However, they will have to pay tax if they run a business or activity under a license from a licensing authority.

Government Controlled Entity

A government-controlled entity in the UAE is defined as one that is wholly owned and controlled, either directly or indirectly, by a government entity, as determined by a cabinet decision.

For a Government Controlled Entity to be exempt from tax, it must:

• Be owned, directly or indirectly, by a Government Entity.
• Only conduct business or activities that are within its Mandated Activities.
• Be mentioned explicitly in a Cabinet Decision.
• Mandated Activities are those activities a Government Controlled Entity carries out according to its established legal regulations, and a Cabinet decision must specify these. The legal decree establishing these entities is crucial for determining if their activities are Mandated.

Persons engaged in an Extractive Business

The CT Law offers tax exemptions for entities involved in an Extractive Business, which includes activities related to exploring, extracting, or exploiting natural resources in the UAE as defined by the Minister. To qualify for this exemption, the following conditions must be met:

• The entity must directly or indirectly hold or be interested in a right, concession, or license issued by the local government for conducting its Extractive Business.
• The entity must be subject to taxation at the Emirate level for this business.
• The entity must have submitted a notification to the Ministry in the required form and manner.
• This exemption does not extend to contractors, subcontractors, suppliers, or others involved in the Extractive Business who do not independently meet these conditions.

Persons engaged in Non-Extractive Natural Resource Business

The CT Law grants a tax exemption to entities involved in non-extractive natural resource businesses in the UAE. This category includes separating, treating, refining, processing, storing, transporting, marketing, or distributing the UAE's natural resources.?

To qualify for this exemption, entities must meet the same conditions as those in Extractive Businesses, with an additional requirement: the income earned from the Non-Extractive Natural Resource Business must come from other businesses or business activities, not end-users.

Qualifying Public Benefit Entity

An entity focused on public benefits, like religious, charitable, artistic, cultural, or educational purposes, might be exempt from the CT law in the UAE if it meets specific conditions. These conditions include:

• The entity's activities must directly relate to or aim to fulfill its established purpose.
• The entity needs to be officially listed in a Cabinet Decision.
• There might be additional conditions set in future Cabinet Decisions.

Qualifying Investment Funds

Under the CT Law, investment funds in the UAE can ask the tax authorities to exempt them from corporate tax, qualifying them as "Qualifying Investment Funds." To be eligible for this exemption, they must meet the following criteria:

• The investment fund or its manager must be regulated by a competent authority in the UAE or a foreign country.
• The fund's interests must be traded on a recognized and regulated stock exchange or be widely marketed and available to investors.
• The fund's primary purpose should not be to avoid paying UAE corporate tax.
• The fund must meet any additional conditions specified by a Cabinet Decision.

Other Exemptions

The CT Law also refers to the following Persons who will be required to apply to the Authorities to be exempt from UAE CT:

• A public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the competent authority in the UAE and that meets any other conditions that may be prescribed
• An entity incorporated in the UAE wholly owned and controlled by certain Exempt Persons subject to certain conditions.
• Any other Person as may be determined in a decision issued by the Cabinet.

In conclusion, it's important for all entities that might be exempt under the CT law to review their activities closely and assess the potential impact. They should consider if any changes or rationalizations are needed.?