Income Exempt from UAE Corporate Tax

Income Exempt from UAE Corporate Tax

In the UAE, certain types of income are exempt from corporate tax as stipulated in the Corporate Tax Law. Understanding these exemptions is crucial for businesses operating within or outside the UAE. Below are the key categories of exempt income:

1. Dividends and Profit Distributions

• From UAE Residents:
  • Dividends and other profit distributions received from juridical persons that are residents in the UAE are exempt from corporate tax.
• From Foreign Juridical Persons:
  • Dividends and profit distributions from foreign juridical persons may also be exempt if they meet specific conditions defined under the Participation Exemption.

2. Participating Interest Income

• Capital Gains and Related Incomes:
  • Income from a participating interest in a juridical person, which includes capital gains, is exempt from corporate tax if certain conditions are fulfilled. A participating interest generally requires:
    • At least 5% ownership in shares or capital.
    • Intention to hold this interest for a minimum of 12 months.
    • The entity must be subject to a tax rate of at least 9% in its resident jurisdiction.

3. Foreign Permanent Establishment Income

• Income derived from foreign permanent establishments may be eligible for exemption, contingent upon an election made by the Resident Person and fulfilling the stipulated conditions.

4. International Transportation Income

• Income derived by non-resident persons from operating aircraft or ships in international transportation is exempt from corporate tax. This includes activities like:
  • The international transport of goods and passengers by air or sea.
  • Leasing or chartering of aircraft and ships used for international transport.

5. Exempt Persons

• Certain entities, such as federal government bodies, local government entities, and specific public benefit organizations, are classified as Exempt Persons and are not subject to UAE corporate tax.

Summary

The exemptions from corporate tax in the UAE encapsulate various income types that can significantly impact business profitability. It is essential for businesses to thoroughly understand these exemptions, as they help avoid potential double taxation and provide financial advantages.

For detailed guidance, businesses may refer to the relevant articles of the Corporate Tax Law and related decisions issued by the UAE tax authorities.