Taxable, Exempt & Free Zone Persons

Categories of persons under the UAE Corporate Tax Law.

Exempted Persons

In the context of the UAE Corporate Tax Law, certain entities and persons are classified as Exempted Persons and are not subject to corporate tax under specific circumstances. These exemptions are designed to support key sectors and activities that align with the UAE's strategic economic objectives. As per the Federal Decree-Law No. 47 of 2022 on Corporate Tax, Exempted Persons include the following:

1. Government Entities:
   Government bodies or departments conducting non-commercial activities are exempt from corporate tax.
2. Government Controlled Entities:
   Entities wholly owned by the government that perform non-commercial activities or operate for the public good may qualify as exempt.
3. Qualifying Public Benefit Entities:
   Organizations established for charitable, religious, educational, cultural, or social purposes and recognized by the Ministry of Finance as meeting the public benefit requirements.
4. Qualifying Investment Funds:
   Investment funds meeting specific regulatory conditions, such as being publicly traded or regulated by competent authorities, may be exempt.
5. Wholly-Owned and Controlled UAE Subsidiaries of Exempted Persons:
   If these subsidiaries are engaged in specific qualifying activities and meet regulatory requirements.
6. Entities Operating in Extractive and Non-Extractive Natural Resource Businesses:
   Businesses engaged in the extraction or exploitation of natural resources, provided they pay Emirate-level royalties or taxes.
7. Social Security and Retirement Pension Funds:
   Funds established for social security or retirement purposes and meeting prescribed conditions.

It is important to note that entities must meet specific conditions set by the law to qualify as Exempted Persons. Any exempt entity must still comply with registration and filing requirements, such as obtaining a Tax Registration Number (TRN) and filing returns or declarations, where applicable.

Free Zone Person

In the context of the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), a Free Zone Person refers to an individual or legal entity established in a Free Zone and meeting certain conditions to benefit from a preferential corporate tax regime. Free Zones are designated areas in the UAE offering tax incentives and other benefits to encourage foreign investment and economic activity.

Key Features of a Free Zone Person:

1. Established in a Free Zone:
   The entity must be incorporated, registered, or licensed within one of the Free Zones in the UAE.
2. Subject to Free Zone Incentives:
   The Free Zone Person must meet the requirements to benefit from the 0% corporate tax rate on Qualifying Income, as defined in the corporate tax law and relevant regulations.
3. Maintenance of Compliance:
   To retain the preferential tax treatment, the Free Zone Person must:
   • Comply with the UAE Corporate Tax Law and maintain proper accounting records.
   • Satisfy the economic substance requirements (if applicable).
   • Ensure their activities align with the list of "Qualifying Activities" specified by the UAE Ministry of Finance.

Taxable Person

Under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), a Taxable Person refers to any individual or entity subject to corporate tax in the UAE. The law divides Taxable Persons into two main categories: Resident Persons and Non-Resident Persons.

1. Resident Person

A Resident Person includes:

• Legal Persons:
  Any legal entity incorporated or established in the UAE, including mainland companies, free zone entities, and public/private organizations.
  Key points:
  • Subject to corporate tax on worldwide income, except for income explicitly exempt under the law.
  • Includes businesses registered in UAE Free Zones, provided they meet the requirements for Free Zone Persons.
• Natural Persons (Individuals):
  Individuals engaged in a business or commercial activity in the UAE, as defined by the law and subject to corporate tax.
  • Personal income (such as salary, dividends, or real estate income earned in a personal capacity) is not subject to corporate tax unless it arises from a business activity.

2. Non-Resident Person

A Non-Resident Person is someone not established or based in the UAE but earns income that is taxable under UAE Corporate Tax Law.
Non-Resident Persons are subject to corporate tax on:

• UAE-sourced income (income earned from activities conducted in the UAE).
• Income attributable to a Permanent Establishment (PE) in the UAE.

Permanent Establishment (PE):

A PE exists when a Non-Resident Person conducts business activities in the UAE through:

• A fixed place of business (e.g., office, factory, workshop).
• A dependent agent authorized to act on behalf of the non-resident.