Corporate Tax: Obligations for Exempt Entities
Individuals or organizations eligible for corporate tax exemptions, referred to as exempt entities, must adhere to specific registration and record-keeping requirements to uphold compliance with tax regulations. Despite benefiting from certain tax advantages, it is essential for exempt individuals or entities to fulfill their obligations to safeguard and retain their exempt status. The following outlines essential aspects of registration and record-keeping obligations for entities exempt from corporate tax.
Record-keeping Requirements for Exempt Persons Under Corporate Tax Law in the UAE
According to the UAE Corporate Tax law, both exempt and taxable persons must maintain necessary documents and records for seven years from the end of the relevant tax period.
It’s important to note that the records should be kept for seven years from the end of the tax period they pertain to, not the year of their creation.
For instance, if a taxable person follows cash basis accounting and raises bills or invoices in a tax period preceding the payment period, the seven-year criteria will be met from the start of the year in which the bills and invoices were paid.
Exempt persons need to provide their records and documents to the FTA upon request. These records must be up-to-date and contain all the information required by the FTA, ensuring easy accessibility for compliance purposes
Exemption Criteria Under UAE Corporate Tax Law:
Under the UAE Corporate Tax Law, various criteria determine exemptions for certain entities. Here is an elaboration on each exemption category:
1. Government Entities:
Entities affiliated with the government are granted exemption. This includes organizations directly linked to government bodies and involved in various activities.
2. Government-Controlled Entities:
Organizations under direct governmental control fall under this category. These entities are subject to the oversight and influence of the government.
3. Extractive Business:
Entities engaged in extractive industries must meet specific criteria outlined in Article 7 to qualify for tax exemption. This includes businesses involved in the extraction of natural resources.
4. Non-extractive Natural Resource Business:
Entities participating in non-extractive natural resource businesses are eligible for exemption, provided they meet the conditions specified in Article 8.
5. Qualifying Public Benefit Entities:
Organizations meeting the defined criteria under Article 9 are classified as qualifying public benefit entities. These entities serve a public purpose and are eligible for corporate tax exemption.
6. Qualifying Investment Funds:
Investment funds that meet the criteria outlined in Article 10 are exempt from corporate tax. This includes funds involved in various investment activities.
7. Public Pensions, Social Security Funds, and Private Pensions:
Entities such as public pensions, social security funds, and private pensions are exempt if they are subject to legal oversight and comply with the specified conditions.
8. Wholly Owned and Controlled Entities:
Juridical persons incorporated in the UAE, wholly owned and controlled by exempt entities (categories 1, 2, 6, and 7 above), are eligible for exemption if engaged in specific activities outlined in the law.
9. Entities Under Cabinet Decision:
Entities that are specifically exempted by the cabinet upon the minister’s recommendation fall under this category. This provides flexibility for additional exemptions determined by the government.
Record-keeping Obligations:
- Duration: Under the UAE Corporate Tax law, both exempt and taxable persons have a shared obligation to retain all necessary documents and records for a period of seven years from the end of the tax period to which they pertain.
- Note: It’s crucial to note that this timeframe is measured from the conclusion of the relevant tax period and not from the year in which the records were initially created.
For instance, if a taxable person follows the cash basis accounting method, they may have bills or invoices generated in a tax period preceding the one in which the payments are made. In such scenarios, the seven-year requirement is fulfilled starting from the tax period in which the bills and invoices are settled.
Registration Obligations:
· Not Required to Register:
Government entities, government-controlled entities, persons in extractive businesses, persons in non-extractive natural resource businesses, and non-resident entities earning state-sourced income without a permanent establishment.
· Mandatory Registration:
Government entities or non-extractive natural resource businesses meeting specific conditions may be subject to registration if they become taxable.
Entities not falling within the exempt categories are generally obliged to register under the Corporate Tax law.
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