UAE Corporate Tax Exemption Explained: What Founders Should Know

UAE’s corporate tax allows for businesses to be exempted from paying taxes. In this article, we explain exempted persons, tax rates, qualifying income for CT and eligibility criteria under the UAE Corporate Tax regime.

Introduction to UAE Corporate Tax Regime

The UAE introduced a federal corporate tax regime effective for financial years beginning 1 June 2023. The objective of Federal Decree Law No. 47 of 2022 on the Taxation of Corporations and Businesses is to align with internationally recognized tax standards. The government aims to create a more competitive UAE economy with diversified government revenue sources.

Under Federal Decree-Law No. 47 of 2022, Corporate Tax is generally charged at 9%, with a 0% rate applying to the portion of Taxable Income up to the threshold amount set by Cabinet decision (currently AED 375,000).

A separate QFZP rate framework of 0% on Qualifying Income and 9% on Taxable Income that is not Qualifying Income (subject to conditions). This is separate from the concept of an “Exempt Person” under Article 4.

Corporate Tax applies for taxable income (derived using business profits adjusted) earned by taxable persons in a tax period, calculated on a self-assessment basis.

The Federal Tax Authority (FTA) is in charge of administering tax obligations through their official EmaraTax portal, with policies and legislation under the scope of the Ministry of Finance.

For clarity, exemption of persons is different from 0% tax rate or Small Business Relief, as the latter are considered as tax treatments on income and not exemption from the law itself.

Resident UAE businesses are also given taxation reliefs through the introduction of Small Business Relief (SBR) and tax loss carry forward. As of the date of writing, Small Business Relief (SBR) applies only where the relevant and previous Tax Period revenues stay within the AED 3 million threshold, and the relief is time-limited to Tax Periods ending on or before 31 December 2026 (unless the rules are changed).

For the purpose of this article, we will discuss who is exempted from UAE CT regime and their eligibility, registration processes, and practical tips for entrepreneurs navigating federal corporate tax.

What is Corporate Tax Exemption?

Under Article 4 of Federal Decree Law No. 47, corporate tax exemption happens when a person or entity is legally excluded from paying corporate tax, either because the entity is completely exempt or is exempt on specific types of income under the UAE CT law.

This is different from (i) a 0% Corporate Tax rate, and (ii) Exempt Income rules that may apply to specific income streams when calculating Taxable Income. In other words, an entity can be within the Corporate Tax regime and still have a 0% rate or Exempt Income treatment without being an Article 4 Exempt Person.

Exemption can be automatic (i.e. granted directly by the law) or conditional – requiring application, approval and ongoing compliance.

Who are the Exempt Persons under Corporate Tax Law?

An entity qualifies for exemption only if it falls within the categories explicitly recognized by the UAE Corporate tax Law and meets relevant conditions. Exempt Persons are a separate legal category under the Corporate Tax Law and are not subject to Corporate Tax while their exemption conditions continue to be met.

Exemption is not based solely on size or industry alone. The United Arab Emirates classifies based on legal status, purpose of the business operating and corresponding regulatory supervision.

1. Government entities and Government Controlled Entities

Government entities are automatically exempt by law, as long as they only carry out their mandated activities. Under the Corporate tax law, this includes federal government entities, Emirate-level government entities, ministries and institutions established by the state and other government departments and authorities.

Government controlled entities are exempt without needing to apply unless they conduct licensed commercial activities. Once they engage outside their mandated activities, the exemption may not apply and the operations under a license may fall within the scope of Corporate Tax.

To be eligible, government controlled entities must be 1) wholly owned and controlled by a government entity, and 2) established to carry out a public interest or governmental function.

What are “mandated activities” under the law?

These are activities that fall within:

• The entity’s founding law
• Its statutory purpose
• Its expressed governmental function

Apart from the government, the UAE corporate tax law provides specific exemptions for certain types of entities and income streams to support strategic sectors and public interest activities.

2. Extractive Businesses & Certain Non-Extractive Natural Resource Businesses

An extractive business refers to the extraction of natural resources (such as oil, gas, minerals, and similar non regenerating resources). Typically, these activities are carried out under a concession, license, or agreement granted by the local government.

Certain non-extractive natural resource businesses refer to businesses operating on activities related to natural resources that are not directly engaged in extraction. These businesses must operate under a license or agreement from the local government.

The tax treatment for both an extractive business and certain non-extractive natural resource businesses is considered exempt and remain subject to Emirate-level taxation.

For example, an oil extraction company operating under a government concession is exempt. However, if the same company decides to run a commercial trading business outside of their license, then this becomes subject to corporate tax.

3. Qualifying Public Benefit Entities

A Qualifying Public Benefit Entity is conditionally exempt entities, subject to approval. Exemption is not automatic and requires formal recognition.

Examples of public benefit organizations include:

• Charities
• Educational institutions
• Religious organizations
• Cultural or scientific institutions, and
• Other nonprofit organizations for public benefit purposes.

To qualify for exemption, the entity must meet the conditions under Article 9 of Federal Decree-Law No. 47 of 2022:

• Be established and operated exclusively for public benefit purposes
• Not conduct business activities except those:
  • Directly related to its stated public benefit purpose
  • Or ancillary to its main objective
• Not distribute income or assets to members, founders or related parties (except as permitted by law)
• Apply to the Federal Tax Authority (FTA)
• Be listed in a Cabinet Decision recognizing it as a Qualifying Public Benefit Entity

4. Qualifying Investment Funds

To encourage investments for economic growth, investment funds can seek tax relief from the UAE corporate tax if they meet certain conditions specified by the law.

Under Article 10, this exemption is also conditional and does not apply automatically.

A Qualifying Investment Fund is an investment vehicle and exempted when it:

• Has as its principal activity the pooling of investor funds
• Operates under the supervision or regulatory oversight of a competent authority in the UAE
• Invests funds in accordance with a defined investment policy
• Satisfies ownership and investor related conditions as defined in the Law, and
• Is subject to application and approval by the FTA required and ongoing compliance

Exempt status applies prospectively from the approved Tax Period.

The law itself does not define one single authority. Instead, “competent authority” refers to the relevant UAE regulator that has legal jurisdiction over the fund.

In practice, jurisdiction can fall under any of the following:

• The Securities and Commodities Authority (SCA) for mainland investment funds
• The Dubai Financial Services Authority (DFSA) for funds established in the Dubai International Financial Centre (DIFC) or the financial free zone
• The Financial Services Regulatory Authority (FSRA) for funds in Abu Dhabi Global Market (ADGM)

However, the Corporate Tax Law uses the general blanket term of competent authority because it depends on where the fund is established, and under which regulatory framework it operates.

5. Public and Private Pension & Social Security Funds

Public and Private Pension and Social Security Funds in the UAE are established to provide financial security and income support to citizens in cases of retirement, disability, death and/or end of service.

These funds operate as part of the governments broader social protection system and safeguard contributors through regulated contribution systems.

In the government sector, these funds are managed by dedicated federal and local authorities, and apply primarily to UAE nationals working in federal and local government entities, and certain private sector organizations where applicable under law.

The system is contribution based, wherein employers and employees contribute a percentage of salary. Benefits are calculated based on contribution or service duration and salary structure.

Due to its nature, these are considered as exempt from paying corporate tax. Exemption applies only while the fund maintains its regulated status and meets additional conditions prescribed by the Ministry of Finance.

6. Wholly Owned UAE Subsidiaries of Persons Exempted under UAE Tax Law

Any wholly owned and controlled subsidiaries by exempted entities may be subject to exemption if conditions are met.

Income Exemption for Free Zone Entities’ Business Activities

The UAE government has introduced various exemptions on income to support free zones and other independent businesses.

The government preserves Free Zone incentives through a specific framework designating Qualifying Free Zone Person (QFZP) status if eligible. However, not all businesses operating in the free zone are eligible for exemption from corporate tax.

UAE’s Free Zone businesses must meet adequate economic substance requirements to qualify. The entity must carry out its core income-generating activities (CIGA) within the Free Zone and maintain appropriate staff, premises, and operational resources relative to its activities.

You can read more about the requirements for status eligibility in our article on Filing for Corporate Tax for QFZPs.

A QFZP benefits from 0% corporate tax on qualifying income and 9% on nonqualifying income.

To qualify and maintain QFZP status, a business must be:

• Incorporated or registered in a UAE Free Zone
• Maintain adequate economic substance in the Free Zone
• Derive qualifying income from permitted activities
• Comply with transfer pricing rules
• Prepare audited financial statements
• Satisfy the de minimis threshold for nonqualifying income (i.e. nonqualifying revenue must not go beyond AED 5 million or 5% of total revenue, whichever is lower)
• Has not elected to be subject to Corporate Tax under Article 19

If the entity fails to meet the conditions, QFZP status is lost from the beginning of the Tax Period and the loss extends to the following four Tax Periods. During this time, the entity becomes subject to standard corporate tax rules during this period.

What is considered as Qualifying vs Nonqualifying Income?

The QFZP framework separates qualifying and nonqualifying income to preserve incentives without distorting the mainland economy. General rule is qualifying revenue comes from permitted activities and transactions; nonqualifying income is taxed to ensure that preferential treatment is tied to genuine economic activity.

Classification depends on the type of activity, status of the entity and sources of income.

As a rule, qualifying income (0% on income eligible for exemption) generally includes:

• Income from transactions and business activities with other free zone persons
• Income from Qualifying Activities as per applicable CT regulation
• Qualifying Intellectual Property income (subject to the specific rules)
• Certain other income where the de minimis requirements are met.

A QFZP’s Taxable Income that is not Qualifying Income is taxed at 9%. This can include income from Excluded Activities and other income that falls outside the QFZP qualifying rules.

The AED 375,000 Corporate Tax Threshold under Corporate Tax Law

Businesses are not “exempt” merely because their Taxable Income is below AED 375,000. Instead, a 0% Corporate Tax rate applies to the portion of Taxable Income up to the threshold, and the standard 9% rate applies to the excess.

This threshold aims to support small and early stage businesses while maintaining a standard corporate tax structure.

How the AED 375,000 threshold works

The threshold applies to taxable income, not revenue.

To arrive at the income subject to tax, take your accounting profit and + tax adjustments, including nondeductible expenses, relevant income exempted from tax, and any other reliefs by law.

1. Taxable income up to AED 375,000 -> 0% corporate tax rate
2. Taxable income > AED 375,000 -> 9% rate on the excess

The threshold does not create an “exempt person” status, and is separate from Small Business Relief, which is based on a revenue threshold (AED 3 million) and is time limited to 31 December 2026 as of publishing date.

The threshold does not remove registration or filing obligations.

Registration under EmaraTax (Federal Tax Authority’s official portal)

Corporate Tax registration is handled through the FTA (via EmaraTax), but not all exempt categories follow the same registration or application path.

Some Exempt Persons are not required to register for Corporate Tax, while other exempt categories must register and may also need to submit an exemption application/approval package.

1. Step 1: Determine eligibility and confirm that the entity falls within a category recognized under Article 4, such as:
   • Qualifying Public Benefit Entities
   • Qualifying Investment Fund
   • Public or private pension or Social Security Fund
   • Wholly Owned or Controlled UAE Subsidiary of an Exempt Person
   • Extractive or Non extractive natural resource Businesses.
2. Step 2: Check whether CT registration is required for your exempt category
   
   Some exempt categories are generally not required to register for Corporate Tax, while other exempt categories are required to register and obtain a Tax Registration Number.
   
   Registration (where required) is done through EmaraTax.
3. Step 3: Submit Exemption Application for conditional entities through the same system with supporting documentation.
   • Submit a formal application to the FTA
   • Provide documentation proving:
     • Legal structure
     • Ownership structure and control
     • Nature of activities
     • Regulatory oversight from applicable legislation
     • Document supporting the entity is listed in a Cabinet Decision in cases required.
4. Step 4: FTA Review and Approval
   • The FTA reviews eligibility and if all conditions are met
   • If approved, exempt status applies from the relevant taxation period
5. Step 5: Ongoing compliance
   Businesses qualified for exemption must:
   • Continue meeting statutory conditions
   • Maintain proper records
   • Notify the FTA of changes

Practical Tips for Businesses Engaged under UAE Corporate Taxation Law

Failure to Meet Exemption Conditions

If exemption conditions are breached or such businesses carry out activities outside the permitted scope, the entity ceases to be exempt from the start of the Taxation Period.

The entity is now treated as a single taxable person. The loss of exemption applies from the start of the tax period in which conditions were not met.

Limited exceptions apply if in certain cases, the failure to meet conditions is “temporary” and corrective measures are promptly taken. However, this is not automatically the case and continued monitoring is advised to retain exempt status.

Here are some other tips and examples we see in founder-led businesses when setting up their UAE Corporate Tax compliance.

The corporate tax regime is intended to empower the national economy and help the UAE achieve its strategic objectives.

Recently, the Cabinet Decision No. 129 of 2025, effective April 14, 2026, revises the UAE’s administrative penalty framework for tax violations. In this article, we highlight the updated penalty system for 2026.

To learn more about our services specific to corporate tax, visit our homepage. You can also check your pricing based on monthly transactions.

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Frequently Asked Questions (FAQs)

This article provides general information on UAE Corporate Tax and does not constitute tax advice under applicable laws. Corporate Tax treatment may vary depending on individual circumstances. Readers should seek professional advice before making any decisions.