Deciphering the UAE Ministry of Finance’s Announcement on Corporate Tax Exemptions

An Overview

In an effort to strengthen its economic diversification and reduce its reliance on oil, the UAE Ministry of Finance has issued a clarifying decree with respect to certain public and private sector organizations being exempted from the impending corporate tax. The tax is slated to go into effect on June 1st, 2023.

Unpacking the Exemptions

In accordance with Ministerial Decision No 43 of 2023, non-resident companies that generate revenue originating from the UAE but do not have a permanent establishment in the country will be exempt from the mandate to register for corporate tax. However, exemptions will also be available to government and government-controlled organizations, extractive and non-extractive natural resource businesses, as well as public benefit organizations that meet certain criteria. Meanwhile, pension and investment funds can also qualify for tax exemptions.
In addition, free zone entities that currently exist will be excluded from corporate tax regulations since they represent a driving force behind the UAE’s burgeoning economy. Furthermore, small businesses that make Dh3 million or less in revenue can receive corporate tax relief through a novel program.

The Tenets of the Corporate Tax Law

In 2022, the UAE introduced a federal corporate tax scheme that set a standard statutory rate of 9%. As a result, corporate tax laws now impact the income of companies whose revenue exceeds Dh375,000 ($102,000). Consequently, companies must adhere to a self-assessment framework, meaning that they are responsible for ensuring that all their documents submitted to the Federal Tax Authority (FTA) are accurate and conform to legal requirements.

A Final Word

By providing clarity on which organizations are exempt from tax registration, the Ministry’s latest decree aims to alleviate the corporate tax burden for start-ups and small businesses and reduce compliance costs. This move underscores the importance of the new corporate tax as a vital instrument for the UAE’s economic diversification strategy.