The introduction of Corporate Tax in the UAE marked a significant shift in the nation’s fiscal landscape. As businesses continue to adapt, understanding the nuances of exemptions is paramount for effective financial planning and compliance. For 2025, clarity on who is exempt and the criteria involved is crucial for business owners, professionals, and freelancers across the Emirates.
At Beyond Numbers, we specialise in helping businesses navigate the complexities of UAE tax regulations. This guide cuts through the jargon to provide a clear, actionable blueprint for understanding corporate tax exemptions in the UAE for 2025.
What is UAE Corporate Tax?
Effective from June 1, 2023, the UAE introduced a federal Corporate Tax on the net profits of businesses. The standard rate is 9% for taxable income exceeding AED 375,000, with a 0% rate applicable to taxable income up to this threshold, providing significant relief for small businesses and startups. The year 2025 also sees the implementation of a 15% Domestic Minimum Top-Up Tax (DMTT) for large multinational enterprises (MNEs) aligning with the OECD’s Pillar Two framework.
Who is Subject to UAE Corporate Tax?
Generally, all businesses and commercial activities undertaken with a license in the UAE are subject to Corporate Tax. This includes mainland companies, free zone entities (though special rules apply), freelancers and independent contractors exceeding a certain revenue threshold, e-commerce sellers, and various other forms of business structures.
Key Corporate Tax Exemptions in the UAE for 2025
While the Corporate Tax applies broadly, the law provides specific exemptions for certain types of entities, recognising their unique status or contribution. Understanding these categories is vital:
Exemption for Government Entities
Federal and Emirate government entities, as well as wholly government-owned companies engaged in mandated activities, are typically exempt from Corporate Tax. However, if these entities undertake a business activity under a license, that specific activity might be treated as an independent taxable business.
Exemption for Government Controlled Entities
Entities controlled by the government may also be exempt, particularly for their mandated activities. Non-mandated business activities would generally be subject to Corporate Tax.
Exemption for Public Benefit Entities
Qualifying Public Benefit Entities, such as charities and non-profit organisations established and operated exclusively for social welfare or public benefit purposes, can be exempt. These entities must meet specific conditions and often require listing in a Cabinet Decision. Their activities must be directly related to their stated purpose, and income or assets cannot be used for the private benefit of shareholders or members.
Exemption for Investment Funds
Qualifying Investment Funds can apply for Corporate Tax exemption. To qualify, they typically need to be regulated, have diversified ownership or be widely marketed, and not be established primarily for tax avoidance. Special clarifications have been issued regarding the tax treatment of investors in exempt REITs.
Exemption for Public Pension and Social Security Funds
Public and regulated private pension and social security funds are also exempt from Corporate Tax, recognising their role in managing retirement savings and providing social security benefits.
Exemption for Extractive Industries
Businesses engaged in the extraction of natural resources (like oil, gas, and minerals) are exempt from the federal Corporate Tax. Instead, they remain subject to taxation under the applicable Emirate-level tax regimes.
Exemption for Non-Extractive Natural Resource Businesses
Businesses involved in non-extractive natural resource activities may also be exempt, provided they meet specific conditions, including holding a license or right from a local government and being subject to Emirate-level taxation on their qualifying income.
Are Small Businesses Exempt from UAE Corporate Tax?
This is a crucial point for many entrepreneurs and small business owners. While there isn’t a blanket exemption purely based on being a “small business,” the UAE Corporate Tax Law incorporates the Small Business Relief.
Understanding the Small Business Relief
The Small Business Relief is a measure designed to support small and medium-sized enterprises (SMEs) by reducing their corporate tax burden and simplifying compliance. If eligible, a business can elect to be treated as having no taxable income for a tax period, effectively resulting in zero Corporate Tax liability for that period. This relief is available until December 31, 2026.
Eligibility Criteria for Small Business Relief
Qualifying for Small Business Relief depends on meeting specific criteria. It’s important to note that eligibility is primarily based on revenue, not profit.
Here’s a summary of the key criteria:
| Criteria | Requirement |
| Revenue Threshold | Total revenue must not exceed AED 3 million in the relevant tax period and all previous tax periods ending on or before 31 December 2026. Exceeding the threshold even once makes the business ineligible for relief in that year and subsequent periods. |
| Resident Person | The business must be a resident person in the UAE (including natural persons conducting business and juridical persons incorporated or controlled in the UAE). |
| Election for Relief | The business must formally elect to claim Small Business Relief when filing its corporate tax return via the EmaraTax platform. This is not automatic. |
| Valid TRN | The business must be registered for Corporate Tax and hold a valid Tax Registration Number (TRN), even if no tax is payable. |
| Not part of MNE Group | The business must not be a member of a Multinational Enterprise (MNE) Group with consolidated global revenues exceeding AED 3.15 billion. |
| Not Qualifying Free Zone Person | Businesses that qualify as Qualifying Free Zone Persons (QFZPs) and elect for the 0% tax rate on qualifying income are not eligible for Small Business Relief. |
| No Artificial Separation | The business activities must not be artificially separated to meet the revenue threshold. |
Opting for Small Business Relief has implications, such as the inability to carry forward tax losses or utilise excess interest expenditure for the periods relief is claimed. Therefore, a careful assessment is needed based on your business’s specific financial situation and future projections.
How to Apply for Corporate Tax Exemptions in the UAE
The application process for Corporate Tax exemptions depends on the type of exemption being sought.
Steps Involved in the Application Process
For entities that are automatically exempt (like most government entities or extractive businesses subject to Emirate tax), no specific application for exemption is required, though registration for Corporate Tax may still be mandatory in some cases (e.g., for extractive/non-extractive natural resource businesses).
For entities that require approval for exemption (such as Qualifying Investment Funds or certain Public Pension/Social Security Funds), an application must be submitted to the Federal Tax Authority (FTA) via the EmaraTax platform. The FTA will review the application and supporting documentation to determine eligibility.
For Small Business Relief, the process involves making an election within the corporate tax return filed with the FTA.
Documentation Requirements
The specific documents required will vary based on the type of exemption. However, common requirements include:
- Trade license and other legal documents.
- Financial statements (audited or management accounts).
- Proof of income and expenses.
- Documentation supporting the entity’s status (e.g., government ownership details, regulatory approvals for funds, documentation proving public benefit activities).
- For Small Business Relief, documentation demonstrating revenue is below the threshold is essential.
It is crucial to maintain accurate and comprehensive records to support any claim for exemption or relief.
Common Pitfalls to Avoid
- Assuming Automatic Exemption: Not all entities are automatically exempt. Check the specific criteria for your business type.
- Failing to Register: Even if exempt or eligible for relief, many entities are still required to register for Corporate Tax with the FTA and obtain a TRN.
- Missing the Election for Small Business Relief: This relief is not automatic; you must elect for it in your tax return.
- Inaccurate Record-Keeping: Proper documentation is vital to prove eligibility for any exemption or relief.
- Not Understanding the Implications of Relief: Small Business Relief has trade-offs, such as limitations on carrying forward losses.
FAQ: Understanding UAE Corporate Tax Exemptions in 2025
Q1: What is the standard Corporate Tax rate in the UAE for taxable income above AED 375,000?
A1: The standard Corporate Tax rate is 9% for taxable income exceeding AED 375,000.
Q2: Is there a lower Corporate Tax rate for businesses with taxable income below a certain threshold?
A2: Yes, there is a 0% Corporate Tax rate applicable to taxable income up to AED 375,000, offering relief for small businesses and startups.
Q3: Which types of government-related entities are typically exempt from Corporate Tax?
A3: Federal and Emirate government entities, as well as wholly government-owned companies engaged in mandated activities, are typically exempt. Government-controlled entities may also be exempt for their mandated activities.
Q4: Can non-profit organizations be exempt from UAE Corporate Tax?
A4: Yes, Qualifying Public Benefit Entities, such as charities and non-profit organizations established for social welfare or public benefit and meeting specific conditions, can be exempt.
Q5: Are investment funds exempt from Corporate Tax in the UAE?
A5: Qualifying Investment Funds can apply for Corporate Tax exemption if they meet criteria related to regulation, ownership structure, and purpose.
Q6: Are businesses in the extractive industries subject to the federal UAE Corporate Tax?
A6: No, businesses engaged in the extraction of natural resources are generally exempt from the federal Corporate Tax and remain subject to applicable Emirate-level tax regimes.
Q7: Is there a specific exemption for small businesses?
A7: While not a blanket exemption, the UAE Corporate Tax Law offers the Small Business Relief, which allows eligible businesses to elect for a 0% tax liability if their revenue does not exceed a certain threshold.
Q8: What is the revenue threshold for the Small Business Relief?
A8: The total revenue must not exceed AED 3 million in the relevant tax period and all previous tax periods ending on or before December 31, 2026.
Q9: Is the Small Business Relief automatically applied?
A9: No, eligible businesses must formally elect to claim Small Business Relief when filing their corporate tax return via the EmaraTax platform.
Q10: Do all exempt entities need to register for Corporate Tax?
A10: Even if exempt or eligible for relief, many entities are still required to register for Corporate Tax with the FTA and obtain a Tax Registration Number (TRN).
Partner with Beyond Numbers for Seamless Compliance
Navigating Corporate Tax exemptions in the UAE requires a thorough understanding of the law and its implementing decisions. Staying compliant and optimising your tax position is essential for sustainable business growth.
At Beyond Numbers, our experienced tax professionals are ready to assist you. Whether you need help determining your eligibility for an exemption or Small Business Relief, preparing the necessary documentation, or ensuring accurate tax filings, we provide expert guidance tailored to your specific needs.
Let Beyond Numbers be your trusted partner in navigating the complexities of UAE Corporate Tax.
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Disclaimer: This blog post provides general information based on the UAE Corporate Tax Law as understood for the year 2025. Tax laws and regulations can change, and their application depends on specific circumstances. It is recommended to consult with a qualified tax professional for advice tailored to your situation.