Corporate Tax Advisory Dubai: Exempt Persons & Funds

In Dubai, corporate tax advisory services play a crucial role in helping entities understand and navigate tax obligations. A select group of organizations, known as Exempt Persons, are granted exemption from Corporate Tax obligations. These entities include Qualifying Public Benefit Entities (QPBEs), public and private pension funds, social security funds, and subsidiaries of Exempt Persons. Each category must adhere to specific criteria to uphold their Exempt Person status and benefit from tax exemptions.

Qualifying Public Benefit Entities (QPBEs)

QPBEs are organizations that operate for charitable, social, cultural, religious, or other public benefit purposes without a profit motive. To qualify as a QPBE, an organization must meet the following conditions:

• Establishment for Permitted Purposes: The organization must be established and operated for one of the approved purposes.

• Business Activity Restrictions: The entity must refrain from conducting business activities, except for those directly related to its charitable mission.

• Asset Utilization: All income and assets must be used exclusively for its intended purpose or to cover associated necessary expenses.

• Income Distribution Restrictions: Distribution of income or assets for personal benefit is strictly prohibited.

Public and Private Pension Funds and Social Security Funds

Public and private pension funds, as well as social security funds, which manage pension contributions and provide retirement benefits, are also granted Exempt Person status. These funds must be:

• Subject to Regulatory Oversight: Managed under the oversight of a competent authority in the UAE.

• Pension Plan Asset Designation: These funds must designate a pool of assets as “pension plan assets.”

• Exclusively Used for Pension Purposes: The assets must be used solely for financing pension benefits or end-of-service benefits.

• Transparency and Audit Compliance: An auditor must annually confirm the fund’s compliance with exemption requirements and report any breaches to the FTA.

• Income from Investments: These funds can only receive income from investments made for the benefit of plan members or beneficiaries.

Subsidiaries of Exempt Persons

Entities established and controlled by an Exempt Person can also qualify as an Exempt Person, provided they meet specific requirements. These subsidiaries must:

• Incorporated in the UAE: They must establish a legal presence in the UAE as a corporate entity.

• Wholly Owned by the Exempt Person: The Exempt Person must hold sole ownership and complete control over the subsidiary.

• Support the Exempt Person’s Mission: Subsidiaries may only engage in activities that are directly related to and support the primary mission of the Exempt Person.

Revocation of Exempt Person Status

Failure to meet the required criteria during a Tax Period will result in the revocation of Exempt Person status. However, certain exceptions may apply:

• Liquidation or Termination: Entities undergoing liquidation or termination may retain their status during the dissolution process.

• Temporary Failure: Exempt Persons who temporarily fail to meet the requirements due to unforeseen circumstances may continue their status if the issue is rectified within 20 business days.

• Tax Advantage: If non-compliance is motivated by a desire to gain an undue tax advantage, the Exempt Person status will be revoked.

Corporate Tax Implications for Exempt Persons

Exempt Persons are not subject to Corporate Tax on their income. As long as they continue to meet the criteria, they enjoy tax exemption throughout the Tax Period. However, they are excluded from certain tax reliefs:

• No Eligibility for Tax Reliefs: Exempt Persons are ineligible for Small Business Relief, Qualifying Group Relief, or Business Restructuring Relief.

• No Tax Loss Transfer: Exempt Persons cannot transfer Tax Losses to other entities or join a Tax Group.

Conclusion

Understanding the corporate tax landscape is vital, and corporate tax advisory in Dubai can help organizations navigate the rules around Exempt Person status. The UAE Corporate Tax Law provides exemptions for specific entities, including QPBEs, pension funds, and subsidiaries of Exempt Persons. While they benefit from tax exemption, they are not eligible for certain reliefs or deductions, and they must comply with strict regulatory guidelines to maintain their status.