Who Counts as an Exempt Person Under UAE Corporate Tax? A Simple Breakdown
Understanding Exempt Status in UAE Corporate Tax
Not every business in the UAE is expected to pay Corporate Tax. Some organizations serve the public, operate with a non-commercial purpose, or perform government level work. These types of entities may be labeled as exempt persons under the UAE Corporate Tax system.
If an organization qualifies for exemption, it either pays no tax automatically or must apply to the Federal Tax Authority to get that status. But being exempt from tax does not mean exempt from responsibility. Filing and reporting may still be required.
Exemptions are designed to ensure that tax does not stand in the way of essential government work or social benefit activities. They help the system focus on collecting tax from businesses that operate for profit.
What Does It Mean to Be an Exempt Person?
An exempt person is a company, fund, or organization that is not subject to UAE Corporate Tax. This status can apply automatically or be granted after approval from the FTA.
Exemptions are designed to support organizations that carry out government work, serve the public good, manage pension or retirement systems, or run approved investment activities.
The Corporate Tax law allows for flexibility but also makes sure that every exemption is used for the right reason.
Some entities never need to apply. They are automatically exempt. Others must apply and meet strict conditions.
Types of Exempt Persons
Exempt persons fall into two main groups. There are those who are automatically exempt and those who must apply.
1) Automatically Exempt Persons
These entities qualify for exemption as soon as they meet the conditions. No application is needed. The goal here is to keep the process simple for core parts of government and other approved entities.
a) Government Entities
This includes ministries, public councils, and federal departments. Their income must come only from government activities, not from business ventures. A ministry running a project for the public is exempt. But if it begins offering paid commercial services, those may fall under Corporate Tax.
b) Government Controlled Organizations
These are public companies listed by Cabinet Decision. Some operate utilities or infrastructure. The extent of their exemption depends on what kind of work they do. For example, a government owned water provider may be exempt for its regulated supply activity but taxable on any separate commercial consultancy services it offers.
c) Extractive and Non Extractive Natural Resource Companies
Businesses working with oil, gas, or minerals are usually taxed by the Emirate. If they continue under Emirate level rules and notify the FTA, they are not taxed again under the federal system. But they must not opt into the Corporate Tax law. These businesses are a key part of the national economy, and the law ensures they are only taxed once.
2) Conditionally Exempt Persons
These entities must apply to the FTA. Exemption is not guaranteed until approved. The FTA looks at activities, structure, regulation, and purpose before granting exemption.
a) Public Benefit Organizations
Charities and non profits that serve the public can qualify if they are on the Cabinet’s official list. They must prove they do not exist to make private profit. These could be education trusts, cultural organizations, or health focused charities. The work must serve the community, not private shareholders.
b) Pension and Social Security Funds
Retirement or welfare funds that are legally set up and well regulated can apply for exemption. They must follow all governance rules. This includes making sure funds are used for members and not diverted. Regulation helps ensure that only genuine funds receive relief.
c) Investment Funds
Some investment structures, like real estate investment trusts, may qualify. The fund must be overseen by a licensed regulator, not controlled by any single person or group, and serving a broad investor base.
The goal here is to support long term savings and economic activity without creating tax shelters.
d) Wholly Owned Subsidiaries of Exempt Persons
If a government or exempt charity owns a support company outright, that company can be exempt too. But only if it helps with the exempt organization’s purpose. If it starts doing regular business, it could lose the exemption. For example, a property company owned by a charity and used only to house operations may qualify. But if it starts renting out to unrelated tenants, it may be taxed.
What Exempt Persons Still Need to Do
Even when no tax is due, exempt persons usually still have obligations. These include registration with the FTA unless the exemption is automatic, keeping records that show you qualify, and filing annual declarations or returns to confirm your exempt status.
These requirements help the FTA monitor the system, avoid misuse, and keep exemptions focused on their intended goals.
How Exemption Impacts Other Rules
Even when a person is exempt, other Corporate Tax rules may still apply. If a company has some exempt and some taxable income, it must separate the two. Transfer pricing rules might still apply if the exempt person deals with related parties. If an exemption is removed later, prior years may be reviewed.
This means exempt persons still need good financial systems and internal controls. Just because no tax is paid does not mean there is no need for structure.
Can Exemption Be Lost?
Yes. If an exempt person no longer meets the conditions, they lose that status. For example, a public benefit organization starts distributing profits, a pension fund fails to meet its regulatory obligations, or a subsidiary begins unrelated commercial activities.
Loss of status can lead to Corporate Tax being applied from that year forward. In some cases, the FTA may also reassess previous years if it finds exemption was incorrectly claimed.
What to Do if You Think You Qualify
If your organization is involved in public benefit or operates under government authority, review the full list of exemption types. You should study the law and Ministerial guidance, prepare your internal documents and financials, apply to the FTA if required, and register as needed.
Using exemption correctly avoids future penalties and protects your organization's tax position. You should also review your eligibility every year. Rules or structures may change, and staying compliant means checking regularly.
Frequently Asked Questions
Do exempt persons need to register for Corporate Tax?
Yes, unless you fall into one of the automatic categories. Others must register and possibly apply.
Is income from commercial activity ever allowed?
Only if it directly supports the exempt purpose. Otherwise, it may lead to disqualification.
What is a government controlled company?
A business entity listed in a Cabinet Decision, usually operated and owned by the UAE government.
Can charities apply for exemption?
Yes, but only if they are on the approved Cabinet list and meet all operating conditions.
What if an exempt company starts doing unrelated business?
It may lose its exemption and be treated as a regular taxable entity.
Do investment funds qualify automatically?
No, they must apply and prove they meet the strict rules.
What happens if I wrongly claim exemption?
You could face back taxes, penalties, and scrutiny from the FTA.
If your organization supports the public, serves a national function, or manages retirement funds, you might be exempt from UAE Corporate Tax. But claiming that status comes with its own checks and responsibilities.
Need help checking your eligibility or filing as an exempt person? Reach out or use Tax Star to stay on the safe side of the system.
