UAE tax exemption dynamics: Empowering exempt persons for economic progress

Corporate tax law designates various entities and individuals as exempt persons

By Prateek Tosniwal

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Published: Wed 7 Feb 2024, 6:51 PM

In the evolving realm of taxation, exemptions serve as beacons of opportunity, illuminating pathways to economic prosperity and societal advancement. Federal Decree-Law No. 47 of 2022 heralds a new era of tax relief, offering a lifeline to designated entities and individuals, aptly termed ‘exempt persons’. These exemptions, crafted with precision and purpose, represent not just fiscal policy but a promise of growth, innovation, and a brighter tomorrow.

Corporate tax law designates various entities and individuals as exempt persons from corporate taxation. These include governmental bodies, extractive or non-extractive natural resource business, qualifying public benefit entities, and qualifying investment funds. Each category of exempt persons adheres to specific criteria tailored to fiscal policy objectives.

Exemption from corporate tax extends to government entities and their controlled counterparts, recognising their pivotal role in public service delivery. However, exemptions are subject to stringent conditions. Tax exemption applies solely to activities within the scope of their mandated activities, ensuring that commercial ventures are subject to corporate tax provisions. The engagement of government entities in commercial activities requires adherence to transparency standards, including robust financial segregation and transparent reporting mechanisms, to uphold the integrity of tax exemptions.

A person engaged in extractive businesses enjoys tax relief if they possess local government-issued rights for extractive activities. Effective taxation by an emirate and formal notification to the ministry are mandatory steps to secure tax relief. Strict oversight mechanisms and adherence to prescribed conditions are essential to safeguard against potential abuses and ensure compliance with regulatory standards.

For person engaged in non-extractive natural resource businesses, eligibility for tax relief depends on meeting specific requirements. Just like in extractive businesses, having rights issued by the local government for non-extractive activities is crucial for exemption. It’s also necessary to ensure that an emirate effectively taxes the business, and that formal notification is given to the ministry to qualify for tax relief. Additionally, keeping ancillary business income below five per cent of total revenue is important to maintain eligibility for exemption under this category.

Qualifying public benefit entities are granted tax exemptions to facilitate their altruistic endeavours. It is mandatory for their establishment to be for charitable, educational, healthcare, religious, or similar purposes, ensuring that their activities align with societal welfare objectives. Business activities must be restricted to those directly related to the entity’s designated purpose, preventing the misuse of tax exemption privileges. Income and assets must be dedicated exclusively to furthering the entity’s mission, with any deviation subject to strict scrutiny to maintain compliance with tax exemption regulations.

Qualifying investment funds can unlock tax relief if recognised by competent authorities and if interests in the investment fund are traded on recognised stock exchanges. The primary purpose of the fund must not be tax avoidance. Any other requirements suggested by the minister and issued by the cabinet must be followed. Compliance with regulatory standards and transparency requirements is essential to maintain the integrity of tax exemption privileges and prevent abuse of tax relief mechanisms.

In conclusion, the effective implementation of tax exemption policies not only provides relief to eligible entities but also contributes to the overall stability and growth of the economy. As exempt persons adhere to the stipulated conditions and fulfil their responsibilities, they become catalysts for sustainable development and equitable prosperity. Moving forward, continued vigilance and adherence to regulatory frameworks will be essential to ensure that tax exemption privileges are utilized responsibly, benefiting both the business landscape and the broader society.

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