UAE corporate tax: Ministry issues decision on exemptions

The decision clarifies procedures for companies undergoing liquidation or termination

The ministerial decision aims to ensure a transparent and efficient tax system in the UAE. Khushnum Bhandari / The National

The UAE Ministry of Finance has issued a new ministerial decision on corporate tax, clarifying conditions under which a company may continue or cease to be deemed exempt, before the implementation of the tax on June 1.

The decision clarifies rules to "ensure that businesses remain eligible for a corporate tax exemption if they fail to meet the relevant exemption conditions under certain circumstances", the ministry said in a statement on Wednesday.

These include a business undergoing liquidation or termination provided that a notification has been submitted to the Federal Tax Authority within 20 business days from the date of the beginning of the liquidation or termination procedure.

"The new ministerial decision clarifies the conditions under which a person may continue or cease to be an exempt person from a different date as a result of an event or situation that goes beyond the person’s control and could not have been reasonably foreseen or prevented," said Younis Al Khouri, undersecretary of the Ministry of Finance.

In such situations, the company must submit an application to the FTA within 20 business days from the date it fails to meet the conditions to be exempt.

This period may be extended by an additional 20 business days if the "failure to rectify is beyond the person's reasonable control".

The decision also addresses cases where a business no longer meet exemption conditions primarily to gain a corporate tax advantage.

In such cases, the business will not be considered exempt on the date it no longer fulfils the exemption conditions, the ministry said.

The decision aims to ensure a "transparent and efficient" tax system that promotes business growth in the UAE, Mr Al Khouri said.

Last year, the UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent, which will come into effect for businesses whose financial year starts on or after June 1 this year.

In December, the country issued the federal corporate tax law, bringing the income of companies exceeding Dh375,000 into the corporate tax bracket.

The UAE corporate tax law currently exempts certain organisations, including those involved in natural resource extraction activities in the country. However, they are still subject to existing local emirate-level tax.

Other exemptions are available to organisations such as government bodies, pension or investment funds and those that contribute to the welfare of society.

Organisations that qualify for the exemption, which was decided by the UAE Cabinet, will include those that focus on activities such as philanthropy, community services and corporate social responsibility.

Existing free-zone organisations are also exempt from corporate tax because they are among the drivers of the UAE’s economic growth, the ministry said in December.

The UAE’s corporate tax regime is based on a self-assessment principle, which means businesses are required to ensure that the documents submitted to the FTA are correct and comply with the law.