Legal entities incorporated in the UAE or controlled and managed from the UAE, their worldwide income would be subject to corporation tax
Income from government and public entities that engage in non-commercial activities for social and public welfare would be exempt from corporation tax.
Persons engaged in a business activity requiring a license or permit from the authorities, the UAE source income of such persons would be subject to Corporation Tax (CT). Legal persons that are incorporated in the UAE or controlled and managed from the UAE, their worldwide income would be subject to CT. Companies that are incorporated outside the UAE, their UAE source income would be subject to CT if such companies have permanent establishments in the UAE or earn UAE source income.
Income from limited partnerships and general partnerships or other unincorporated joint ventures (JVs) and associations of persons (AoPs), where the liability of one of the partners is not unlimited (that is i.e. a full limited partnership), would be taxable in the hands of the partners or members only. Otherwise, these partnerships, JV and AoP would be treated as a UAE company. Income from cross-border unincorporated partnerships would generally follow the same partnership tax treatment as in the respective foreign jurisdictions.
The above are the general rules for applying CIT, but there are some exceptions, and the following people would be exempt from corporation tax.
Government and government-owned entities: Income from government and public entities that conduct non-commercial activities for social and public welfare would be exempt from CIT. If the government and/or its entities engage in commercial activities for business purposes under the business license, the income of the government and those entities would be subject to CIT.
Natural resources: Under the constitution of the United Arab Emirates, natural resources belong to the emirate where the resources are located, and companies involved in the extraction of natural resources sign an agreement with the respective emirate for the extraction of natural resources , and these companies pay taxes. at the level of the Emirates. The CT, being a federal tax, would not apply to the income of companies engaged in the extraction and exploitation of natural resources which are subject to tax at the emirate level.
Charities and public utility organizations: Charities and public benefit organizations share responsibility with government for promoting social or public welfare, or community or group interests. If these organizations are involved in such activities, they would apply for an exemption from the TB Ministry of Finance. If the application is approved, the organization would be listed in a Cabinet decision and its income would be exempt from CT. When these organizations undertake business activities for the personal gain of the people associated with the organizations, the income of these organizations would be subject to CIT.
Investment Funds: Investment funds are generally structured as limited partnerships rather than legal persons in order to ensure tax neutrality for their investors. The CT regime intends to treat UAE and foreign investment funds that are structured as unincorporated partnerships as tax transparent, which would put investors in the funds in a similar tax position as if they had invested directly in the fund’s underlying assets.
Regulated investment funds and real estate investment trusts can apply to the Federal Tax Authority (FCA) to be exempt from CT if they meet the following conditions:
• The fund is regulated by regulatory authority like Securities and Commodities Authority, Financial Services Regulatory Authority, Dubai Financial Services Authority, etc.
• The fund is recognized by the Ministry of Finance.
• The group of five or fewer investors and their related parties do not have a fifty percent or more economic interest in the fund.
• Unique investor and their related parties do not have more than a twenty percent economic interest in the fund.
• Interests in the the funds may be freely traded on the UAE stock exchange or foreign regulated stock exchange or widely marketed and are available to intended investors.
Public and private regulated social security and pension funds are also exempt from CT.
Based on the above criteria, people should assess their status and proceed accordingly to have a correct implementation of corporation tax, if any.
Mahar Afzal is Managing Partner at Kress Cooper Management Consultants. The above is not an official opinion but a personal opinion of the author based on the public consultation document on corporation tax. For any questions/clarifications, please write to him at [email protected]