UAE Broadens Corporate Tax Exemption to Include Certain Foreign-Owned Entities

UAE Broadens Corporate Tax Exemption to Include Certain Foreign-Owned Entities

The UAE continues to reinforce its position as a global investment powerhouse with another significant update to its Corporate Tax framework. In a move that enhances fairness and investor confidence, the Ministry of Finance has expanded the scope of tax exemptions to include select foreign-owned juridical persons, subject to specific conditions.

This development aims to bring parity between UAE-based and foreign-incorporated entities affiliated with already-exempt institutions, offering a strategic edge to global investors operating through UAE-linked structures.

📌 Summary of the New Tax Update

On 14 May 2025, the UAE Cabinet issued Decision No. 55 of 2025, amending the existing Corporate Tax regime to allow certain foreign juridical persons to claim corporate tax exemption, with effect retrospectively from 1 June 2023.

This change applies specifically to foreign entities that are:

• 100% owned and controlled by an exempt person as per Article 4(1) of the UAE Corporate Tax Law,

• And that satisfy operational and management requirements outlined by the Federal Tax Authority.

✅ Who Qualifies as an Exempt Owner?

The exemption applies when the foreign entity is entirely owned by any of the following:

• UAE Federal or Emirate government bodies

• Government-controlled entities

• Qualifying investment funds

• Public pension funds

• Social security funds

These exempt entities already enjoy tax-free status in the UAE for their qualifying income.

📝 Conditions for Tax Exemption

To qualify for exemption, the foreign juridical person must meet at least one of the following criteria:

1. Aligned Activities with Exempt Owner

The foreign entity carries out part or all of the same activities as its exempt owner.
Example: A real estate investment firm abroad acting on behalf of a UAE-based pension fund.

2. Exclusive Asset Holding

The entity solely holds assets or manages funds for the exempt owner.
Example: A foreign SPV holding a portfolio for a UAE sovereign fund.

3. Operational Support Functions

The entity provides services that directly support the exempt owner's core operations.
Example: A foreign IT support company servicing a UAE government enterprise.

📍 Additional Requirement: Place of Effective Management (POEM) in UAE

Even if incorporated abroad, the foreign entity must have its strategic control and management exercised from the UAE. This ensures the entity is genuinely tied to the UAE's economic ecosystem and prevents misuse of the exemption.

💡 Why This Matters

The update offers multiple strategic advantages:

• Equal Treatment
  Removes tax discrimination between UAE-incorporated and foreign-incorporated entities with identical ownership structures.

• Investor Confidence Boost
  Encourages international holding companies, funds, and institutional investors to consider the UAE as a central base.

• Structural Flexibility
  Motivates global businesses to assess their existing setups and possibly shift decision-making functions to the UAE.

• International Alignment
  Demonstrates the UAE’s continued alignment with OECD tax principles and global economic standards.

🧭 What Should Businesses Do Next?

If you’re a foreign entity connected to UAE government-linked institutions or exempt investors, now is the time to review your corporate and tax structure.

Here’s what you need to consider:

1. Review Your Ownership Structure
   Verify if your entity is wholly owned by a UAE-exempt person.

2. Assess Place of Effective Management (POEM)
   Ensure your core business decisions are being made within the UAE.

3. Align Your Business Functions
   Match your entity’s purpose with that of the exempt owner as per the updated conditions.

4. Document Everything
   Maintain clear, accessible records to demonstrate compliance with the exemption criteria.

🤝 How Alwahat Accounts & Internal Audit Services Can Support You

At Alwahat, we specialize in navigating complex UAE tax laws for both local and international clients. Our expert team can:

• Determine your eligibility under the updated exemption rules

• Assist with restructuring or re-domiciling your business for compliance

• Evaluate your POEM status and documentation requirements

• Handle your corporate tax registration and filings

• Provide ongoing advisory on tax planning and regulatory compliance

This regulatory evolution presents an opportunity for foreign-owned entities to benefit from a 0% corporate tax rate, provided they act decisively and align with the UAE’s legal framework.

📞 Let’s Talk Tax Strategy

Contact us today to understand how these changes apply to your business:

📱 +971 50 132 7005
📧 info@alwahataudit.com
🌐 www.alwahataudit.com

Disclaimer:
The content provided above is for general informational purposes only and does not constitute legal or tax advice. For full details and the latest updates, please refer to the official website of the Federal Tax Authority (FTA)