In the UAE, when it comes to Corporate Tax, not everyone is liable to pay. There are those with a special status who are classified as “Exempt Persons” under various tax frameworks. Does this mean that they are free from Corporate Tax regulation?
Short answer: No, it doesn’t. Even if a company qualifies as an Exempt Person, missing deadlines or relevant documentation can lead to penalties, loss of status, or extra scrutiny from tax authorities. Understanding what’s required and acting on it in time can make all the difference between a smooth filing and an unexpected fine.
This blog provides you a full overview of what you might be up against if you are planning to register as an exempt person or simply want to ensure that you are complaint.
Who qualifies as an Exempt Person?
According to Article 4 of the Corporate Tax Law, the following categories of entities are given the Exempt status due to their contribution and significance to the social and economic landscape of the UAE:
- Automatically exempt:
- Government Entities
- Entities controlled by the government that are listed in a Cabinet Decision
- Exempt if they meet a certain criterion and are notified to the Ministry of Finance:
- Businesses involved in extracting natural resources
- Businesses involved in Non-Extractive Natural Resource Businesses
- Exempt if listed in a Cabinet Decision:
- Qualifying Public Benefit entities (QPBEs)
- Exempt if applied to and approved by the Federal Tax Authority:
- Public or private pension and social security funds
- Qualifying Investment Funds
Out of these categories, Automatically exempt (1) and Exempt if notified to the Ministry of Finance (2) are not liable to register unless they engage in activities which are within the scope of Taxable activities.
Hidden Risk:
The most common mistakes made by exempt persons are:
- Not registering for Tax – The persons (apart from the above-mentioned) are required to register for Corporate Tax according to their relevant entity type and hold a TRN. The application for exemption must be made within 60 business days from the end of the Tax Period in which they meet the conditions for exemption.
- Failing to make an annual declaration – Those who qualify do not need to submit a full Corporate Tax Return. However, they have to file an annual declaration with the FTA within nine months after the end of the relevant Tax Period. This declaration should confirm that they still meet the conditions for exemption and that the information held by the FTA is accurate and up to date.
- Not notifying the FTA about changes in exempt status when they no longer fulfil the criteria: On the date when the person ceases to meet the relevant criteria of the exemption, they are required to notify the FTA and continue to file tax as a taxable entity for that tax period.
How to stay compliant and avoid costly mistakes:
- Ensure that you have registered for Corporate Tax.
- Apply for exemptions at the relevant tax periods.
- Submit an Annual Declaration every year, which confirms that the Exempt Person continues to fulfil the relevant exemption conditions, and that their records with the FTA are still valid.
- An auditor’s confirmation for a Private Pension Fund or Social Security Fund that it adheres to the criteria for maintaining exempt status compliance.
- Maintain records including accounts, documents, and other relevant information to substantiate exempt status for seven years following the end of the tax period during which this status was obtained, as required by the FTA to facilitate easy verification of the Exempt Person’s status.
The exemption status can be seen as tax relief, but it is important to know that there are still regulations to comply with. Whether you already qualify or plan to apply for exemption, staying informed and taking action is crucial to avoid penalties and maintain your exempt status. In tax matters, doing nothing or waiting often costs more than taking action.
