The UAE has long been a favored destination for entrepreneurs and professionals, thanks to its appealing taxation system. The country’s fiscal advantages, such as the absence of federal taxation and a low VAT rate of 5%, make it a global business hub. However, with the introduction of corporate tax in June 2023, it’s crucial for individuals and businesses to grasp the nuances of this new system. This article delves into the types of income exempted from corporate tax in the UAE, highlighting how these exemptions can help individuals and businesses save money.
List of Income Exempted from UAE Corporate Tax
Certain types of businesses and incomes are exempt from corporate tax in the UAE. Let’s explore the various incomes exempted from corporate tax in the UAE:
Incomes Earned by Individuals
Incomes earned by individuals in their personal capacity, whether through private or public institutions in the UAE, are exempt from corporate tax. However, this exemption is void if the income source requires a commercial license. This exemption significantly enhances the UAE’s appeal as a prime destination for individuals seeking employment.
2. Foreign Income
Income earned by individuals or businesses outside the UAE is usually not subject to UAE corporate tax. This means that if you live in the UAE and earn income from a job or business outside the UAE, such income is exempt from corporate tax in the UAE. This exemption is one of the biggest advantages of living in the UAE.
3. Income from Investments
Certain types of income from investments may also be excluded from taxable income. Dividends, capital gains, stock sales, and other forms of investment income fall into this category. Such an exemption makes the UAE a desirable location for investors looking to minimize taxes on their investment income.
4. Income Earned from Real Estate
Income earned by individuals from real estate dealings, such as the sale and purchase of property, is exempt from UAE corporate tax. This exemption supports the UAE’s thriving real estate market.
5. Businesses Registered in Free Zones
Businesses operating in the free zones are not subject to corporate tax under certain conditions. These businesses must comply with regulatory requirements and avoid operating in mainland UAE. This exemption continues to make the free zones business hotspots in the UAE.
6. Businesses Involved in the Extraction of Natural Resources
Businesses involved in the extraction of natural resources are exempt from corporate tax. These businesses are subject to rules and regulations set by the Emirates and are subject to an emirate-based tax instead.
7. Participation Exemption under the UAE Corporate Tax Law (Article 23)
Under Article 23, if a group company pays dividends out of its profits and earns income from the sale of its shares within the tax group, such income will not be subject to tax again. Participation interest refers to owning at least 5% or more in the shares or capital of the juridical person.
8. Foreign Permanent Establishment Exemption under the UAE Corporate Tax Law (Article 24)
A “foreign permanent establishment” refers to a business owned by a resident outside the UAE. A resident can elect not to consider the income and expenditure associated with such an establishment when calculating taxable income. This includes ignoring losses in the foreign permanent establishment and any positive income and associated expenditure.
9. Income Earned by Non-Residents from Operating Aircraft (Article 25)
According to Article 25, income earned by a non-resident from operating or leasing aircraft or ships and associated equipment for international transport is exempt from corporate tax, provided specific conditions are met. These conditions include reciprocity of tax treatment in the applicable jurisdiction where the non-resident is a resident individual.
Despite the introduction of a federal taxation system, the UAE remains an attractive destination for investors, individuals, and businesses. By ensuring a low tax rate and numerous exemptions, the UAE continues to uphold its status as a prime business hub. Understanding these exemptions can help maximize tax benefits and maintain the UAE’s competitive edge in the global market.
How Can Unicorn Global Solutions Help You?
Unicorn Global Solutions has been delivering robust accounting and auditing services across the UAE for over a decade. In addition to these services, Unicorn Global Solutions excels in providing professional tax consultation to clients. Our team is well-versed in both VAT and corporate tax regimes and is always prepared to meet any tax-related needs.
Our professionals have extensively studied the new corporate tax regime, gaining a comprehensive understanding of all potential exemptions and deductions. This expertise allows us to identify numerous ways your entity can save on taxes. If you’re unsure about the list of income exempt from UAE corporate tax, our experts are here to provide clear and detailed guidance.
We can help you navigate the complexities of the UAE tax system, ensuring you take full advantage of available exemptions and benefits. To learn more about how Unicorn Global Solutions can assist you with your tax planning and compliance needs, contact our team today. We’re committed to helping you optimize your tax strategy and achieve your financial goals. Text us on WhatsApp or call us today.
