Updated UAE Corporate Tax Legislation and the Benefits it can provide for UAE Taxpayers

In the UAE’s constantly evolving regulatory environment it is crucial for businesses and individuals alike to ensure that they remain fully compliant and aware of the ways the legislation pertains to them, so that they can plan strategically and effectively.

The relatively recent introduction of corporate tax in the UAE saw businesses seeking to discover how they will be impacted and whether they qualify for any reliefs or exemptions. This latest legislative update carries potential advantages for certain business structures, to enable them to enhance their tax position.

What is the recent corporate tax update in the UAE?

On 18 November 2024, the UAE Ministry of Finance (MoF) issued Ministerial Decision No. 261 of 2024, on Unincorporated Partnership, Foreign Partnership and Family Foundation which repeals the previous Ministerial Decision No. 127 of 2023.

The new legislation includes significant changes to the tax treatment of Family Foundations by extending Article 17 of the UAE Corporate Tax law to juridical persons wholly owned and controlled by the Family Foundation.

This will be welcome news for  taxpayers who hold companies with real estate assets or financial portfolios.

How can UAE taxpayers benefit from the recent UAE corporate tax updates?

Corporate Tax Exemptions for Holding Companies and Family Foundations

This offers an additional incentive for taxpayers with holding companies to establish a Foundation in the UAE. Through establishing a Family Foundation, taxable holding companies may now find themselves eligible for a tax exemption on income which would otherwise have been taxable.

Currently, companies in a UAE Free Zone may be eligible to benefit from Qualifying Free Zone Person (QFZP) relief and a 0% Corporate Tax rate, provided they satisfy several conditions, including maintaining audited accounts, adhering to transfer pricing documentation requirements, and ensuring there is adequate substance in the Free Zone. They also need to be carrying out a qualifying activity.

By opting to be treated as an unincorporated partnership, under Article 17, a holding company can be exempt from such somewhat lengthy administration.

Corporate Tax Exemptions for Real Estate Income

Another benefit arising from Ministerial Decision no. 261 of 2024 is the impact it may have on the taxability of real estate income.

Companies holding real estate in the UAE, whether they are resident companies in a Free Zone or in the mainland, or non-UAE companies that are treated as UAE tax resident as they are managed and controlled from here, are in most instances subject to the 9% Corporate Tax rate on real estate income.  This also applies to QFZPs who qualify for the 0% Corporate Tax rate on their qualifying income.

The new legislation means that if the shares in these companies are held by a Family Foundation, then their UAE tax liability could be reduced to zero and at the same time the shareholder and their family receive a greater degree of asset protection. This is a new benefit that can be found for businesses that generate income through UAE property and real estate assets.

Who is eligible for UAE corporate tax exemption after the update?

As with most tax legislation, certain conditions need to be met before a taxpayer can qualify for the relief, but for those individuals holding investment companies personally now is the time to review whether this remains the best option. In most instances, this relief is accessible provided the conditions are met.

What are the conditions to be met for UAE corporate tax?

These exemption qualification criteria include:

- Existence of a Family Foundation which wholly holds and controls the relevant juridical person

- The Family Foundations satisfies the conditions under Article 17 of the UAE Corporate Tax Law and successfully applies to be treated as an Unincorporated Partnership

- The relevant juridical person satisfies the conditions under Article 17 of the UAE Corporate Tax Law and successfully applies to be treated as an Unincorporated Partnership

Broadly speaking, the conditions under Article 17 require that the income generated would be deemed to be personal investment income or real estate investment income in the hands of a natural person.

How can Sanctuary help?

Companies holding financial portfolios or real estate investments in the UAE should carefully consider the implications of the legislative update and seek advice to ensure a tax efficient strategy.

In the case of the recent updates, the potential ease of eligibility and the removal of administrative requirements is attractive to those taxpayers who qualify.

With these changes, the UAE continues to position itself as a global business hub. Businesses operating in the UAE, or those looking to enter the market, should seek consultation with tax professionals to appropriately assess their tax liabilities under the UAE’s regime.

At Sanctuary, our experienced team of tax experts can fully advise the corporate tax implications, as well as how to best prepare and ensure compliance, for new and existing businesses in the UAE. We can assist in establishing Foundations, as well as provide ongoing tax administration and compliance services to assist with continued requirements .

Please contact us at ask@sanctuary.ae or fill out a contact form on our website if you would like to understand if your company can benefit from this relief resulting in an exemption from UAE Corporate Tax and thus, no longer be required to file UAE Corporate Tax returns.