Who Is Taxable Under UAE Corporate Tax? Guide to Exempt and Taxable Persons in 2025
Since the introduction of Federal Decree-Law No. 47 of 2022, Corporate Tax in the UAE is now a reality for most businesses. While the tax rate is relatively low, figuring out whether you need to pay or not isn’t always straightforward.
The first step is understanding whether you're considered a Taxable Person, an Exempt Person, or not subject to tax at all. And even if you’re exempt, that doesn’t mean you can skip registration or reporting.
Let’s break it all down.
What Makes Someone a Taxable Person?
A Taxable Person is anyone, individual or business, who falls under the Corporate Tax rules. The law breaks this down into two main types: Resident Persons and Non-Resident Persons.
Resident Persons
You’re considered a Resident Person if:
- You are a company formed in the UAE (like an LLC or Free Zone entity)
- You are a foreign company that is effectively managed and controlled from within the UAE
- You are a natural person (an individual) who earns more than AED 1 million from business activities in the UAE
Just a heads-up: the word “resident” here refers to tax status, not immigration.
Non-Resident Persons
You’re a Non-Resident Person if you are based outside the UAE but still earn income from inside the country. This can apply if:
- Your business has a Permanent Establishment in the UAE
- You have a connection to the UAE, like owning property or assets here
- You earn UAE-sourced income from business operations or contracts
In most cases, Non-Resident Persons still need to register and might need to file returns.
What Is an Exempt Person?
Not everyone has to pay Corporate Tax. The law makes space for certain people and entities to be exempt. This includes two groups: those automatically exempt and those who need to apply for exemption.
Automatically Exempt Persons
These groups don’t need to apply. They’re out of the tax system by default:
- UAE government entities
- Government-controlled entities that are officially listed
- Companies working in extractive industries that are already taxed at the Emirate level
- Companies in non-extractive natural resource industries, if taxed locally
Conditionally Exempt Persons
Some people and entities need to apply to the Federal Tax Authority to be exempt. These include:
Qualifying Public Benefit Entities
This includes charities, foundations, and non-profit organisations that are officially listed by the Cabinet. They must exist to support the community in meaningful ways.
Pension or Social Security Funds
These funds must be regulated in the UAE and operate only to provide retirement or social benefits.
Qualifying Investment Funds
Some funds, like REITs, may qualify if they meet certain rules:
- They must be regulated
- They should show economic substance
- They need to have a diverse ownership base
Wholly-Owned UAE Subsidiaries of Exempt Persons
If a subsidiary exists only to support the work of an exempt parent company (like managing property or admin tasks), it can also apply for exemption.
Just remember, even if you qualify as exempt, most of these entities still need to register with the FTA.
Do You Need to Register Even If You Don’t Pay Tax?
In most cases, yes. The law requires almost all businesses to register, even if they won’t pay Corporate Tax. This helps the FTA track who’s in the system.
Let’s go through a few examples:
- A UAE LLC? Yes, you must register and file.
- A Free Zone business? Yes, registration is required.
- A government entity? No need to register if you’re automatically exempt.
- A regulated pension fund? You need to register and possibly file depending on your status.
- A freelancer earning over AED 1 million? You need to register and pay tax.
- A sole proprietor earning less than AED 1 million? No tax and no registration required.
The penalty for not registering? AED 10,000 even if you don’t owe any tax.
What About Free Zone Companies?
Free Zone companies are considered Taxable Persons by default. But they can benefit from a zero percent rate if they meet the criteria to become a Qualifying Free Zone Person.
Here’s what they need to do:
- Earn income that qualifies (like from exports or other Free Zone entities)
- Have real business activities in the Free Zone
- Keep non-qualifying income within a very small limit
- Maintain audited financial statements
- Avoid electing to be taxed at the nine percent rate
If they don’t meet any one of these conditions, they lose the zero percent benefit and get taxed on all their income.
Quick Recap: Who Pays and Who Doesn’t?
- A mainland LLC will usually pay zero percent or nine percent, depending on its profit level
- A Free Zone business that qualifies will pay zero percent on certain income
- A freelancer earning more than AED 1 million is taxable
- A pension fund that is properly regulated may be exempt
- A government-controlled body that is listed can be automatically exempt
- An investment fund may be exempt if it meets all conditions
- A non-resident with a permanent establishment in the UAE will be taxed
- A sole proprietor making less than AED 1 million has no tax to pay and no need to register
Why This Matters
Knowing your classification is step one. Even if you don’t owe any tax, that doesn’t mean you’re free from all responsibilities. You might still need to:
- Register with the FTA
- Keep proper records
- File reports or exemption applications
If you’re unsure where your business stands, it’s smart to get an expert opinion early. Waiting too long could lead to fines or missed deadlines.
FAQs
What is a Taxable Person in UAE Corporate Tax?
A person or entity who falls under the tax law and must calculate and pay Corporate Tax. This includes resident companies and certain non-residents.
Are all Free Zone companies exempt from Corporate Tax?
No. They must meet strict criteria to become a Qualifying Free Zone Person. If not, they will be taxed like any other business.
What is a Resident Person under the tax law?
A company formed in the UAE, a foreign company managed from the UAE, or an individual earning over AED 1 million from local business.
Do I need to register if I’m exempt?
In most cases, yes. Many exempt persons still need to register for tracking and compliance purposes.
What is the penalty for not registering for Corporate Tax?
AED 10,000, even if you are not required to pay any tax.
Can a sole proprietor be exempt?
If the income is under AED 1 million, yes. They are not considered a Taxable Person under the law.
What qualifies as income from a Permanent Establishment?
Any UAE-based business activity, including contracts, services, or assets operated from inside the country.
What is a Qualifying Public Benefit Entity?
A non-profit or charity listed in a Cabinet Decision that serves the UAE’s public interests.
Can an investment fund be exempt from tax?
Yes, but only if it meets strict conditions around regulation, ownership, and purpose.
Are government entities taxed under UAE Corporate Tax?
No, if they are automatically listed and exempt in official government decisions.
