What are the Exempt Income Categories Under UAE Corporate Tax Regime?

Overview

According to the Public Consultation Document released by the Ministry of Finance (MOF) on April 28, 2022, the UAE Corporate Tax (CT) regime plans to stop double taxation by not taxing some types of income.

Most of the UAE CT doesn’t apply to companies based in the UAE. This is because most of their income comes from investments in other companies and operations outside the UAE, either through foreign subsidiaries or foreign branches.

The Federal Tax Authority will be in charge of the exempt income scheme, which will include participation exemptions or similar rules used in international markets.

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Exempt Incomes Under UAE CT

Most of the following income will not have to be taxed: There will be no withholding tax on payments made inside or outside the UAE.

Dividend Income

Companies in the UAE that get dividend income from their qualifying shareholdings won’t have to pay income tax on that money. This would help stop double taxation since money from profits paid out as dividends is already taxed once. All domestic dividends from UAE companies, even those paid by a Free Zone entity that is exempt from CT, will not be taxed.

Dividends from foreign companies will also not be subject to the CT.

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Capital Gains

UAE corporate shareholders won’t have to pay tax on capital gains from the sale of shares in a subsidiary company. This will keep corporate profits from being taxed twice.

Capital gains from selling shares in a Free Zone Person will not be taxed if the Free Zone Person is a holding company and most of its income comes from shareholdings in subsidiary companies.

Capital gains from the sale of shares in both UAE companies and foreign companies are exempt from CT as long as certain conditions are met. For example, the UAE shareholder company must own at least 5% of the shares in the subsidiary company, and the CT rate for foreign companies must be at least 9%.

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Profit of the Foreign Branch

Both the credit method and the exemption method can be used to get a CT exemption for a business in the UAE. They can get a foreign tax credit for taxes paid in the country where the foreign branch is located, or they can get a tax exemption for the profits from the foreign branch.

The UAE company will not be able to take back a claim for foreign branch profit exemption, and it will apply to all of its foreign branches. You can’t use the exemption for foreign branch profits if the foreign branch isn’t in a tax jurisdiction with a high enough tax rate. When a company chooses to hire the services of a corporate tax advisor in the UAE, it can get better ideas about how to get a foreign branch profit exemption.

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Other Incomes

Profits from a reorganization of groups and transactions between groups will not be taxed. A non-resident can also get an exemption if he or she makes money by operating or leasing ships or planes, as well as any equipment that goes with them, for international transportation. But this exemption can only be requested if a UAE business in the country in question gets the same tax treatment. This is called “reciprocity”.

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The Bottom Line

UAE companies need to figure out if they can meet the necessary requirements to take advantage of the exempt income scheme. Knowing what kinds of income are exempt from the UAE corporate tax regime will help businesses get ready.

If you talk to corporate tax consultants in Dubai, they can help you figure out how corporate tax might affect your business. To prepare well for corporate tax, you can talk to the best corporate tax advisors in Dubai, like Jitendra Chartered Accountants (JCA).

Black Swan is one of the top corporate tax service providers in the UAE. They can help companies make a smooth transition to the new tax system. Corporate tax assessment, corporate tax compliance and corporate tax agency are the main services.

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