Exempt Persons for Corporate Tax

What is an Exempt Person?

The Corporate Tax Law outlines exemptions for specific individuals or entities based on compelling public interest and policy justifications. These entities are referred to as “Exempt Persons.”

The guide covers the following categories of Exempt Persons:

Qualifying Public Benefit Entities listed in a Cabinet Decision that meet the specified conditions.
Public and private pension or social security funds, which can attain Exempt Person status through application and approval by the FTA. The conditions vary based on whether the fund is public or private, and distinctions exist between pension funds and social security funds for private funds. In the case of a pension or social security fund being classified as an Exempt Person, its wholly-owned subsidiary can also seek classification as an Exempt Person from the FTA, contingent on meeting specific conditions.

Qualifying Public Benefit Entities

Conditions for meeting Qualifying Public Benefit Entity status

A “public benefit entity” pertains to an organisation formed by private individuals, government, or non-governmental bodies for charitable, social, cultural, religious, or other public benefit activities without profit distribution to private individuals. Recognizing their societal contribution, the Corporate Tax Law grants an exemption from Corporate Tax to Qualifying Public Benefit Entities, defined as entities meeting conditions outlined in Article 9 of the law and listed in a Cabinet decision at the Minister’s suggestion.
The conditions set out in Article 9 of the Corporate Tax Law are as follows:

1. Establishment and operation for specific purposes such as religious, charitable, scientific, artistic, cultural, athletic, educational, healthcare, environmental, humanitarian, or social welfare.
2. Non-conduct of business activities unrelated to the entity’s purpose.
3. Exclusive use of income or assets for the entity’s purpose or associated necessary expenditures.
4. Prohibition of income or assets distribution for personal benefit of non-qualifying individuals.
5. Additional conditions as prescribed by the Cabinet.

To attain Qualifying Public Benefit Entity status, an entity meeting these conditions must apply to the relevant government entity (e.g., Ministry of Community Development in the UAE), which, upon verification, refers the case to the Ministry of Finance for Cabinet inclusion. Once approved, the entity becomes exempt from Corporate Tax.

Establishment and Operation purpose

Exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational, healthcare, environmental, humanitarian, animal protection or other similar purposes, or
As a professional entity, chamber of commerce, or a similar entity operated exclusively for the promotion of social welfare or public benefit.

Business or Business Activity condition

This requirement mandates that the entity refrain from engaging in any Business or Business Activity unless such activities directly align with or contribute to the entity’s established purpose. The intention is to prevent a Qualifying Public Benefit Entity from competing with similar commercial activities carried out by non-exempt entities. Compliance with this condition is automatic if the entity abstains from conducting any Business or Business Activity.
However, if such activities are undertaken, an assessment is necessary to determine whether they directly align with or contribute to the entity’s established purpose. Examples of commercial activities that would not be considered unrelated business may include organising fundraising gala dinners, a museum selling admission tickets, or a sports club selling refreshments in its canteen.

Income and Assets condition

This condition requires that the entity’s income or assets are used exclusively in the furtherance of the purpose for which it was established, or for the payment of any associated necessary and reasonable expenditure incurred., where income or assets are used exclusively for the payment of expenditure, such expenditure must be both necessary and reasonable, i.e. both conditions must be satisfied.
Necessary and reasonable expenditure may include rent, utilities, insurance premiums and remuneration paid to employees and officers for services actually rendered. Remuneration should not be excessive taking into account the particular service rendered and the amount generally charged for such a service. Whether an expenditure is reasonable and necessary is a matter of fact, and should be determined with regards to the specific circumstances of the entity, and its purpose and operating model.

No personal benefit conditions

This condition requires that no part of the entity’s income or assets is payable to, or otherwise available, for the personal benefit of any shareholder, member, trustee, founder, or settlor, unless it is payable to a Qualifying Public Benefit Entity, Government Entity or Government Controlled Entity. This condition is there to ensure that its income and assets are not used to directly or indirectly promote the economic self-interest of any fiduciary or employee or for any other personal pecuniary gains.
It does not preclude the payment of salaries or reimbursement of expenditure to Persons and their Connected Persons involved in the establishment or operation of the entity, provided that such expenditure is necessary and priced at arm’s length.

Listed in a Cabinet Decision

The definition of Qualifying Public Benefit Entity in the Corporate Tax Law requires that in addition to meeting the conditions in Article 9 of the Corporate Tax Law, entities that are to be considered as Qualifying Public Benefit Entities for the purposes of the Corporate Tax Law. The Cabinet has the power to amend the list in the future at the suggestion of the Minister, making either additions or deletions to it.

Monitoring compliance

For the purposes of monitoring compliance with the exemption requirements, the FTA may request any relevant information or records from a Qualifying Public Benefit Entity to verify that the entity continues to meet the relevant conditions to be exempt from Corporate Tax. The information requested must be provided within the timeline specified by the FTA and may include, for example, books and records to demonstrate that the resources of the Qualifying Public Benefit Entity were used only for its stated public benefit purpose, copies of agreements entered into by the Qualifying Public Benefit Entity, and details of its beneficiaries, employees, officers and fiduciaries.

Effective Date of Exemption

In principle, the approval of an organisation as a Qualifying Public Benefit Entity would generally be effective from the beginning of the Tax Period in which the Qualifying Public Benefit Entity is included in the relevant Cabinet Decision. However, the Cabinet may allow, for example, an earlier start date where the entity complied with the requirements of this Article in prior Tax Periods.

Payments to a Qualifying Public Benefit Entity

A Taxable Person who makes donations, grants or gifts to a Qualifying Public Benefit Entity which is listed in a Cabinet Decision can claim a deduction for Corporate Tax purposes. No deduction is allowed for donations, gifts or grants made to an entity that is not a Qualifying Public Benefit Entity.

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This article was published on 04 January 2024.

Corporate Tax Guide 2023

Updated : December 2023
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Exempt Persons for Corporate Tax