Understanding Exempt Income Under UAE Corporate Tax Law
With the introduction of Corporate Tax in the UAE at a standard rate of 9%, understanding what types of income are exempt from taxation becomes crucial for businesses looking to optimize their tax positions. Certain categories of income, if they meet specific conditions, are considered exempt and are not included in taxable income. We have attempted to simplify the concept of exempt income to help UAE-based companies stay compliant while benefiting from available tax reliefs.
Whether you're a UAE resident juridical person (or company), an investor with overseas interests, or a foreign entity operating in international transport, you could be sitting on tax-free income—if you qualify.
Bottom Line
What is Exempt Income Under UAE Corporate Tax?
Exempt income is essentially income that is excluded from the computation of taxable income, meaning you won’t pay corporate tax on it. Here are the key types:
1. Dividends from Resident Companies
No further conditions apply. If you hold shares in a UAE-based company and receive dividends or profit distributions, these are automatically exempt and hence, tax-free.
2. Dividends & Profit Distribution from Foreign Companies
Must be from a participation interest, which generally refers to owning at least 5% in a foreign juridical person. This has been explained in detail here. If the participation conditions are met, any dividends or profit distribution is exempt income.
3. Other Income from Participation Interest
This Includes:
- Gains or losses on sale/transfer of shares
- Foreign exchange differences
- Impairment gains or losses
This applies whether the company is resident or non-resident. Example: Selling shares in a qualifying UAE or foreign company resulting a gain or loss is exempt.
4. Income from Foreign Permanent Establishments (PEs)
Businesses can elect to exclude income and expenses from a foreign PE, such as a branch office. The foreign PE must meet the following conditions:
- The PE must be subject to corporate tax (or similar) in the foreign country
- The foreign jurisdiction must have a corporate tax rate higher than 9%
5. Income of Non-Resident Entities Operating Aircraft or Ships
This income is exempt only if:
- International transport (people, goods, parcels)
- Leasing or chartering aircraft/ships for international use
- Leasing essential equipment used in international air or sea transport
Understanding exempt income is a key part of strategic tax planning under the UAE Corporate Tax framework. From dividends to foreign PE income, knowing what qualifies can help businesses legally reduce their tax burden and focus on growth.
Discliamer:This blog is intended for educational and informational purposes only and does not constitute professional or legal advice. For specific guidance related to your business, please consult a qualified tax advisor or contact our team directly.
Need Help with UAE Corporate Tax Compliance?
At MSI Auditors, we specialize in corporate tax advisory, including assessing exempt income eligibility, tax structuring, and compliance. Let our experts help you make the most of UAE's favorable tax environment.
