Ministry of Finance announces entities exempt from registering for Corporate Income Tax purposes

On 10 March 2023, the Ministry of Finance issued Ministerial Decision No. (43) of 2023 Concerning Exception from Tax Registration for the Purpose of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Ministerial Decision).

The Ministerial Decision is issued in accordance with article 51, clause 1 of the Corporate Income Tax (CIT) Law which states that all taxable persons must register with the Federal Tax Authority (FTA) for CIT purposes, except in certain circumstances.

According to the Ministerial Decision, the following Persons are not required to register with the FTA for CIT purposes:

• Government Entities;
• Government Controlled Entities;
• Persons engaged in Extractive Business that meet the conditions of article 7 of the CIT Law;
• Persons engaged in a Non-Extractive Natural Resource Business that meet the conditions of article 8 of the CIT Law; and
• Non-Resident Persons that only derive UAE-sourced income as per article 13 of the CIT Law and do not have a Permanent Establishment in the UAE.

The exception from registration will not apply where the above entities become a Taxable Person for CIT purposes.

With respect to Non-Resident Persons that only derive UAE-sourced income without having a permanent establishment in the UAE it should be noted that their UAE-sourced income will technically remain subject to corporate tax in the UAE, although at least initially, only a 0% withholding tax will be applicable. The withholding tax rate may be increased in the future, in which case applicable double tax treaties may provide relief from such UAE withholding tax.

It is expected that the following Exempt Persons will still be required to register for CIT purposes with the FTA:

• Qualifying Public Benefit Entities;
• Qualifying Investment Funds;
• Public pension or social security funds;
• Legal Persons incorporated in the UAE which are wholly owned and controlled by an Exempt Person and which (i) undertake part or whole of the activity of the Exempt Person, (ii) engage exclusively in holding assets or investing funds for the benefit of the Exempt Person or (iii) carry out activities that are ancillary to those carried out by the Exempt Person; and
• Unincorporated Partnerships.

Key takeaway

The Exempt Persons specified in Ministerial Decision No. (43) of 2023 will not be required to register for Corporate Income Tax purposes, unless they become a Taxable Person. Other Exempt Persons will in principle be required to register with the Federal Tax Authority.

The Ministerial Decision reduces the administrative burden for certain Exempt Persons while maintaining the UAE's attractiveness to foreign investors by simplifying tax compliance requirements for Non-Resident Persons earning UAE-sourced income without a Permanent Establishment in the UAE. This policy decision is in line with international best practices and will certainly be welcomed by foreign investors.