Corporate Tax in UAE: Exemptions Announced for Select Foreign-Owned Entities

In a significant development for foreign investors, the UAE has made a series of announcements regarding corporate tax exemption for specific foreign-owned business entities. These reforms are part of the country’s strategic initiatives to enhance its competitiveness along with bringing itself into conformity with international tax standards. For companies operating or looking to enter the UAE, it is vital to realize the effects of these reforms.

Introduction Of Corporate Tax In UAE

The UAE officially introduced corporate tax on business profit from June 1, 2023, by way of Federal Decree-Law No. 47 of 2022. The standard corporate tax is 9% on taxable profits above AED 375,000. This policy reform was aimed to drive diversification of national sources of revenues as well as align with international tax principles, including those outlined by OECD.

However, to make sure that it remains an attractive place for businesses, the UAE introduced flexibility in the system. The new corporate tax exemption introduces much-needed certainty and incentives for foreign investors, particularly those that are Free Zone-based or handling cross-border activities.

corporate tax exemption

Most Notable Corporate Tax Exemptions For Foreign-Owned Structures

The Ministry of Finance has issued several important decisions providing corporate tax exemption in specific situations. The reliefs are to prevent double taxation, encourage foreign investment, and ease compliance for multinational enterprises.

0% Corporate Tax for Eligible Free Zone Entities

Those operating in the UAE’s Free Zones—the vast majority of which are 100% foreign-owned—may be eligible for a 0% corporate tax rate on profits from:

Other Free Zone entities

Foreign customers

Qualifying activities as stipulated in law

To qualify, businesses must meet economic substance requirements, maintain separate accounts, and follow transfer pricing rules. Non-qualifying income, such as income arising from operations in the mainland, remains subject to the 9% standard rate.

This corporate tax exemption is a breakthrough for foreign investors that wish to benefit from the UAE’s location and world-class infrastructure.

Participation Exemption for Dividends and Capital Gains

UAE resident corporations are entitled to claim a full exemption from corporate tax on dividends and capital gains emanating from qualifying shareholdings. To qualify, the UAE corporation should:

Hold at least 10% of the foreign company’s shares

Own the shares for an uninterrupted period of 12 months

Ensure the foreign company is subject to the same tax

This relief is intended to prevent double taxation of worldwide income and render the UAE a more desirable jurisdiction as a holding company.

Foreign Permanent Establishments (PEs) Excluded from UAE Tax

If a UAE resident company has a Permanent Establishment (PE) in a foreign country with a tax rate of at least 9%, the firm can claim relief from corporate taxation on earnings from such foreign PE. The exemptions avoid companies paying tax twice on the same level of income—once outside the UAE and then at home.

The relief will only work if:

The foreign PE is within a jurisdiction of at least 9% taxation

Sufficient transfer pricing documentation is maintained

Substance rules are complied with

This aligns corporate tax in UAE with international best practice and simplifies tax planning for multinationals.

4. Exemption of specified Government and Non-Profit Organizations

Certain government enterprises, public benefit organizations, and pension schemes continue to be exempt from corporation tax. Their wholly owned subsidiaries are also entitled to exemption if their activities further the fundamental exempt purposes.

This relief ensures that essential public and charitable services are not affected by corporation tax.

Exemption for Certain Non-Resident Organizations

Foreign companies earning UAE-sourced income with no UAE permanent establishment are not required to register for corporate tax in UAE. Such income may still be subject to withholding tax, although this is often zero under UAE law or in operation tax agreements.

This simplifies compliance and reporting conditions for passive investors and foreign firms with limited UAE activity.

Why This Matters For Global Investors

These exemptions from tax convey the strategic vision of the UAE: to compete, be transparent, and investor-friendly, while complying with global tax standards. The fine balance of earning national revenues and granting corporate exemptions from tax presents a sound structure that appeals to a wide range of businesses—ranging from start-ups in technology to multinationals.

For foreign-owned businesses, the understanding of these exemptions will help frame operations effectively and limit tax burden. With the UAE continuing to impose and simplify taxation policies, proactive planning and professional counsel will be more crucial than ever.

Final Thoughts From My Taxman

At My Taxman, we believe that successful tax planning is first about being well-versed. Recent exemptions in the UAE are opportunities as much as they are obligations for international business. Don’t know which way to go on the evolving landscape of corporate tax in UAE? Our specialists can guide you in making informed, compliant, and lucrative decisions.

Require help with UAE corporate tax planning?

Contact My Taxman today to ensure you’re making the most of every exemption and opportunity.