Introduction:
The UAE's Federal Decree-Law No. 47/2022 introduces significant changes to corporate and business taxation, effective from June 1, 2023. This article provides an overview of the key provisions related to corporate tax exemptions for Extractive Businesses, Non-Extractive Natural Resource Businesses, Qualifying Public Benefit Entities, and Qualifying Investment Funds. Understanding these provisions is crucial for businesses in these sectors to ensure compliance and optimise their tax strategies.
Tax Exemption Conditions for Extractive Business:
Article 7 of Federal Decree-Law No. 47/2022 specifies conditions under which an Extractive Business may qualify for Corporate Tax exemption. To be eligible, the business must hold a right, concession, or license granted by a Local Government, be subject to taxation as per Emirate legislation, and inform the Ministry of its Extractive Business status.
If the business has extractive and non-extractive operations, income from the extractive sector is taxed under Emirate laws, while non-extractive activities are governed by Federal Decree-Law No. 47/2022 unless exempt. Non-extractive revenue below 5% of total income is supplementary, requiring separate financial reporting and equitable distribution of common expenses. Transactions between Extractive and non-extractive segments are deemed Related Party transactions unless the latter qualifies for exemption.
Tax Exemption Conditions Under Non-Extractive Natural Resource Business:
Article 8 grants Non-Extractive Natural Resource Businesses exemption from Corporate Tax if they meet specific criteria, including holding a Local Government license, deriving income from active Business operations, being subject to Emirate taxation, and notifying the Ministry.
Rules for income from multiple sources and classification of supplementary activities align with those for Extractive Businesses. Transactions between Non-Extractive Natural Resource Businesses and other entities are considered Related Party dealings unless exempt.
Qualifying Public Benefit Entity:
Article 9 outlines tax exemption criteria for Qualifying Public Benefit Entities. These entities must serve specific public benefit purposes, refrain from unrelated business activities, and strictly allocate income and assets as intended. Tax exemption commences at the outset of the Tax Period upon Cabinet listing.
Qualifying Investment Fund:
Article 10 permits Investment Funds to seek tax exemption under specified conditions. These funds must comply with regulatory oversight, trade on recognised stock exchanges, and ensure non-use for Corporate Tax avoidance. Authorities may request data to verify adherence to conditions.
Definition of Taxable Person and Corporate Tax Base:
Article 11 classifies Taxable Persons as Resident or Non-Resident. Residents encompass juridical and natural persons conducting Business in the State or effectively managed foreign entities. Non-residents are liable if they have Permanent Establishment, State Sourced Income, or specified nexus within the UAE.
Article 12 defines Corporate Tax bases for Residents and Non-Residents, contingent on income sources within and outside the UAE. UAE Sourced Income includes revenue from Residents, Non-Residents with Permanent Establishment, and local activities, assets, and services.
Conclusion:
Understanding UAE's Federal Decree-Law No. 47/2022 corporate tax exemptions is vital for Extractive Businesses, Natural Resource sectors, Public Benefit Entities, and Investment Funds. This overview assists businesses in navigating regulatory changes, ensuring compliance, and enhancing tax strategies. For comprehensive insight and personalised counsel, consulting professional legal advisors is recommended.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.