The UAE introduced a federal corporate tax regime in 2023, applying a 9% tax on business profits exceeding AED 375,000, with significant updates in 2025 including a 15% Domestic Minimum Top-Up Tax for large multinationals. Despite this, several corporate tax exempt entities in the UAE remain, under specific conditions, preserving the UAE’s business-friendly environment while aligning with global tax standards.
Who Is Exempt from Corporate Tax in the UAE in 2025?
- Small Businesses Below the Profit Threshold
Businesses and individuals with annual taxable profits below AED 375,000 are fully exempt from corporate tax. This exemption supports startups and SMEs by reducing their tax burden and encouraging entrepreneurship.
- Qualifying Free Zone Entities
Tax-exempt companies in the UAE such as those operating in Free zone that meet the Federal Tax Authority’s (FTA) criteria can benefit from a 0% corporate tax rate. To qualify, these entities must generate income primarily from activities within the free zone or from overseas transactions. However, income derived from mainland UAE transactions may be taxable unless it falls under specific qualifying categories such as warehousing or limited distribution.
- Government and Government-Controlled Entities
Entities wholly owned or controlled by the UAE government and engaged in sovereign or public benefit activities are exempt from corporate tax. This includes federal and emirate-level government bodies performing public functions.
- Extractive Businesses
Companies involved in oil, gas, and mineral extraction are subject to emirate-level taxation regimes rather than the federal corporate tax system, effectively exempting them from the 9% federal corporate tax.
- Charities and Public Benefit Organizations
Non-profit organizations that are approved by the FTA and operate for public benefit without profit distribution qualify for exemption. They must meet certain registration and operational criteria to maintain their tax-exempt status.
- Certain Investment and Pension Funds
Qualifying investment funds, private pensions, and public social security funds are exempt from corporate tax, supporting the UAE’s financial sector and social welfare systems.
- Non-Resident Persons with State-Sourced Income Only
Non-resident entities deriving income solely from UAE state sources and without a permanent establishment in the UAE are exempt from corporate tax, simplifying cross-border business operations.
- Dividend Income, Capital Gains, and Intra-group Transactions
Income such as dividends from qualifying shareholdings, capital gains, and profits from group reorganizations or intra-group transactions are generally exempt from corporate tax, encouraging corporate restructuring and investment within the UAE.
Registration and Compliance for Exempt Entities
Even exempt entities may be required to register with the FTA unless specifically exempted under Ministerial Decision No. 43 of 2023. For example, government entities, extractive businesses, and certain non-residents are exempt from registration unless they become taxable persons under the law.
Strategic Implications for Businesses
Understanding these UAE corporate tax exemptions is crucial for UAE businesses to optimize tax planning and ensure compliance. While the corporate tax regime introduces new obligations, exemptions provide relief to key sectors and smaller enterprises, maintaining the UAE’s attractiveness as a global business hub.
Businesses should consult with corporate tax advisors to navigate the detailed conditions and ensure timely registration and reporting, especially as the UAE continues to refine its tax framework in line with international standards.
FAQs
Who is exempt from corporate tax in the UAE in 2025?
Free zone entities, certain government entities, and businesses operating in sectors with special exemptions are typically exempt.
Are all free zone companies exempt?
Yes, most free zone companies enjoy corporate tax exemptions, provided they meet specific regulatory conditions.
Are foreign investors exempt from corporate tax?
Foreign investors in UAE free zones and specific sectors may be exempt from corporate tax under certain conditions.
Are there any exceptions to the corporate tax exemptions?
Yes, businesses involved in natural resources extraction or other specified industries may be subject to tax, even within free zones.
