Taxable Person vs Exempt Person

Introduction

With the introduction of Corporate Tax in the UAE from 1st June 2023, it has become essential for businesses to identify whether they are a Taxable Person or an Exempt Person under the law. This classification determines your tax obligations, including whether you need to register, file returns, and pay tax.

Here, we explore the difference between a Taxable Person and an Exempt Person under Federal Decree-Law No. 47 of 2022, along with examples and practical implications.

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⚖️ 1. Who is a Taxable Person?

A Taxable Person is any legal or natural person that is subject to Corporate Tax in the UAE. The taxable person may either be a Resident or a Non-Resident conducting business in or deriving income from the UAE.

✅ Types of Taxable Persons

A) Resident Persons

• UAE mainland companies

• Free zone entities (QFZPs and non-QFZPs)

• Foreign companies effectively managed and controlled in the UAE

• Individuals with commercial licenses conducting business in the UAE

• Unincorporated partnerships (depending on structure)

B) Non-Resident Persons

• Foreign companies with a Permanent Establishment (PE) in the UAE

• Foreign companies earning UAE-sourced income

🧮 Corporate Tax Rates for Taxable Persons

Taxable Income Rate

Up to AED 375,000 0%

Above AED 375,000 9%

Multinationals (Pillar Two) 15% (if applicable)

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🚫 2. Who is an Exempt Person?

An Exempt Person is a legal person that is not subject to Corporate Tax, either permanently or under specified conditions. Even though they are exempt from paying Corporate Tax, many must still register with the FTA and submit a Declaration to confirm their exempt status.

🛑 Categories of Exempt Persons

A) Government Entities

• Federal and Emirate governments

• Government ministries, departments, and agencies

B) Government-Controlled Entities

• Entities owned at least 51% by a government, and conducting mandated activities

C) Public Benefit Entities

• Registered charities, foundations, and not-for-profit organizations

• Must be listed in a Cabinet Decision

D) Qualifying Investment Funds

• Funds regulated by the Securities and Commodities Authority (SCA), Central Bank, or Financial Free Zone authorities (e.g., DIFC, ADGM)

E) Pension or Social Security Funds

• Subject to specific regulatory oversight and approval

F) Natural Resource Businesses

• Entities engaged in oil, gas, or natural resource extraction (already taxed by Emirate-level authorities)

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📋 Key Differences: Taxable Person vs Exempt Person

Feature Taxable Person Exempt Person

Subject to Corporate Tax? ✅ Yes ❌ No

Taxable Income? Worldwide (resident) or UAE-source (non-resident) Not applicable

Tax Rate 0%, 9%, 15% 0% (exempt)

FTA Registration Required? ✅ Yes ✅ Yes (most cases)

Corporate Tax Return Filing? ✅ Yes ❌ No (only Declaration)

Examples LLCs, FZCOs, foreign branches, freelancers Government bodies, charities, investment funds

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📌 Compliance Requirements for Exempt Persons

Even though Exempt Persons are not subject to tax, they must:

• Register for Corporate Tax with the FTA

• Obtain a Tax Registration Number (TRN)

• Submit an annual declaration to maintain exempt status

• Maintain records proving their exemption (licenses, approvals, etc.)

Failure to register or file the declaration can result in penalties.

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🧠 Why This Classification Matters

Knowing whether your business is a Taxable Person or Exempt Person is vital for:

✅ Ensuring legal compliance

✅ Avoiding administrative penalties

✅ Optimizing tax planning and corporate structuring

✅ Securing Free Zone benefits (QFZP vs non-QFZP)

✅ Filing correct returns or declarations with the FTA

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🧾 Need Help? We’ve Got You Covered

At Sheikh Anwar Accounting and Auditing LLC, we assist with:

• Assessing your tax status

• Registering with the FTA

• Preparing tax returns or exemption declarations

• Advising on Free Zone vs mainland structuring

• Managing transfer pricing and related party disclosures

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📞 Talk to Our Experts Today

🌐 www.sa-auditors.com

✉️ info@sa-auditors.com | 📱 +971-XXX-XXXX

📍 Dubai | Sharjah | Abu Dhabi