The United Arab Emirates (UAE) has recently notified the list of persons who are exempted from obtaining corporate tax registrations. This decision comes after the UAE’s introduction of the Corporate Tax Law (Federal Decree-Law No. 47 of 2022), which will take effect for tax periods beginning on or after 01-06-2023. The Ministry of Finance issued Ministerial Decision No. 43 of 2023, granting exemption from tax registration to certain individuals and entities.
Article 51 of the Corporate Tax Law requires taxable persons to register for Corporate Tax with the Federal Tax Authority, except in certain circumstances. The Ministry of Finance’s decision outlines the specific circumstances in which registration is not required.
According to the decision, the following persons are exempted from registration:
(a) A Government Entity;
(b) A Government Controlled Entity;
(c) A Person engaged in an Extractive Business that meets the conditions of Article 7 of the Corporate Tax Law;
(d) A Person engaged in a Non-Extractive Natural Resource Business that meets the conditions of Article 8 of the Corporate Tax Law;
(e) A Non-Resident Person that derives only State Sourced Income under Article 13 of the Corporate Tax Law and that does not have a Permanent Establishment in the State according to the provisions of the Corporate Tax Law.
The decision to exempt these individuals and entities from corporate tax registration is in line with international best practices. Many countries exempt government entities from paying taxes, as they are considered to be serving the public interest rather than operating for profit. Additionally, exempting certain businesses from taxation is a common practice in many countries to promote economic growth and investment.
The exemption shall be applicable as long as the entities and individuals continue to meet the exemption conditions noted in the relevant articles of the Decree-Law. It is important to note that entities and individuals who are not exempted from tax registration must comply with the Corporate Tax Law and register with the Federal Tax Authority. Failure to comply with the law may result in penalties or fines.
The Corporate Tax Law aims to diversify the UAE’s economy by creating new sources of revenue for the government. The tax is expected to generate billions of dirhams in revenue annually, which will be used to fund public services and infrastructure projects. The law applies to businesses operating in the UAE, including free zones, and covers a wide range of industries, including finance, construction, and manufacturing.
The law imposes a tax rate of 5% on the taxable profits of companies and branches operating in the UAE. Certain industries, such as oil and gas and the banking sector, are subject to different tax rates. The law also includes provisions for tax exemptions and incentives, such as the exemption for entities and individuals mentioned in the Ministerial Decision.
The Corporate Tax Law is part of the UAE’s broader efforts to create a more stable and sustainable economy. The government has introduced several economic reforms in recent years, including the introduction of value-added tax (VAT) in 2018. The VAT has been successful in generating revenue for the government and encouraging businesses to become more efficient and competitive.
In conclusion, the UAE’s notification of the list of persons exempted from obtaining corporate tax registrations is a significant step in implementing the Corporate Tax Law. The exemption is in line with international best practices and aims to promote economic growth and investment. Entities and individuals who are not exempted from tax registration must comply with the Corporate Tax Law and register with the Federal Tax Authority. The law is expected to generate significant revenue for the government and support the UAE’s economic diversification efforts.
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