CORPORATE TAX IN UAE – EXEMPT PERSON
As we know that the Corporate Tax is applicable on corporations and all other businesses carried out in the UAE. However, certain categories of persons and their activities are exempted from the Corporate Tax as per the Decree Law. Exempt persons are not required to register for Corporate Tax in UAE, and no provisions of the Federal Decree law No. 22 shall be applicable on them.
Exemption can be automatic or through an application to the Authority. Automatic means these persons will be directly exempted if they meet all the conditions prescribed in the decree law. And certain category needs approval from Federal Tax Authority for the exemption, this is done through an official application to the Authority further to meeting all the conditions prescribed in the decree law.
Following are the persons exempted for the purpose of Corporate Taxation.
1. Government Entities
Government Entities includes the Federal and Emirate Governments and their departments, authorities and other Public Institutions. Government entities generally carry out sovereign activities that are non-commercial in nature and are not in competition with the activities of private suppliers.
However, if the government entity earns any income from commercial activities which requires a separate trade license, shall be within the scope of Corporate Tax. In this case the entity will be required to register in accordance with the Decree Law and separate financial records must be kept to compute the Taxable income of such commercial activities.
2. Government Controlled Entities
As per the law, any entity directly or indirectly wholly owned and controlled by a government entity, that carry out a Mandated activity is called as a Government Controlled Entity.
If Government-Controlled Entities engage in activities which are in the nature of business and are not mandated under the trade license, then such entities will be within the scope of Corporate Tax. Such entities will be required to register for Corporate Tax immediately and separate set of Financial records are to be prepared of such business activities which will be liable to calculate the taxable income from such business activities as per the Decree Law.
3. Extractive Natural Resource Business
Extractive Business is been defined in the Article 2 as the Business or Business Activity of exploring, extracting, removing, or otherwise producing and exploiting the Natural Resources of the State or any interest therein as determined by the Minister.
A person who engage in Extractive Business shall be automatically exempt from Corporate Tax if the person is holding a right, license or concession from a local govt to undertake extraction activities which is subject to emirates level taxation.
Moreover, any other activities carried out by the person which are ancillary to extraction activities and the income from such other business is not exceeding 5% of the total revenue in a tax period of that person, they will be also exempt. If income from such ancillary activities exceeds 5% of the total revenue in a tax period of the person, then the ancillary activities will be coming within the scope of Corporate Tax. The other business shall be treated as an independent business and financial statements shall be kept separately from the Extractive Business.
4. Non-Extractive Natural Resource Business
A Non-Extractive Natural Resource business includes the activities of separating, treating, refining, processing, storing, transporting, marketing, or distributing the natural resources of the state.
Similar to Extractive business, a person who engage in Non-Extractive Natural Resources Businesses shall be automatically exempt from Corporate Tax if the person is holding a right, license, concession from a Local Govt to undertake non-extraction activities which is subject to Emirates level taxation.
Any other activities carried out by the person which are ancillary or incidental to Non-Extraction activities and the income from such other business is not exceeding 5% of the total revenue in a tax period of that person, they will be also exempt. If income from such ancillary activities exceeds 5% of the total revenue in a tax period of the person, then the ancillary activities will be coming within the scope of Corporate Tax. The other business shall be treated as separate from the Non-Extractive Business with separate financial records are required to be kept for computation of Taxable income.
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