Many businesses think they are exempt. Most are not. This guide explains every exemption category under Federal Decree-Law No. 47/2022 in plain English.
Author: Nithin Pathak
Updated: March 2026
Read time: 7 min
Since UAE corporate tax came into effect in June 2023, one of the most common questions business owners ask is: "Am I exempt?"
The short answer for most businesses is no. The UAE corporate tax applies broadly, and the exemptions are narrower than many people assume. Here is exactly who qualifies — and who does not.
Fully Exempt Entities
The following entities are fully exempt from UAE corporate tax and do not need to file a CT return (unless specifically notified by the FTA):
1
UAE Government Entities
Federal and local government departments, authorities, and agencies. This is automatic — no application needed.
2
Government-Controlled Entities
Entities wholly owned and controlled by government that are listed in a Cabinet Decision. Must be specifically named — not all government-linked companies qualify.
3
Extractive Businesses
Businesses engaged in extracting UAE natural resources (oil, gas, mining). These are subject to existing emirate-level resource taxation instead.
4
Non-Extractive Natural Resource Businesses
Businesses involved in non-extractive aspects of natural resources (water, power utilities). Subject to emirate-level taxation.
5
Qualifying Public Benefit Entities
Charities and public benefit organisations listed in Cabinet Decision No. 37/2023. Must be specifically named on the list.
Entities That Must Register But May Pay 0%
These are not exempt. They must register for corporate tax, file annual returns, and maintain records — but they may owe zero CT:
Small Business Relief (Revenue < AED 3M)
Businesses with revenue below AED 3 million in a tax period can elect Small Business Relief, resulting in zero CT liability. Critical points:
The election must be made actively in each CT return — it is not automatic
Revenue is measured per tax period, not cumulatively
Free zone companies and members of multinational groups are excluded
If you forget to elect in a given year, you owe 9% on income above AED 375K
Qualifying Free Zone Persons (QFZP)
Free zone companies can qualify for the 0% corporate tax rate if they meet all 6 conditions:
Maintain adequate substance in the free zone
Derive "qualifying income" (as defined by Cabinet Decision)
Have not elected out of the QFZP regime
Comply with transfer pricing documentation requirements
Prepare audited financial statements
Meet the de minimis requirement (non-qualifying revenue does not exceed the lower of AED 5M or 5% of total revenue)
⚠️ Common Misconception
Being in a free zone does not automatically mean you are exempt from corporate tax. You must meet all 6 QFZP conditions, file an annual CT return, and maintain audited financial statements. Many free zone companies that assumed they were exempt are now facing compliance gaps.
Individuals and Natural Persons
Individual income (salaries, investment income, real estate income) is not subject to UAE corporate tax unless the individual is conducting a business activity that requires a commercial licence.
If you operate a sole establishment (sole proprietorship) with annual turnover exceeding AED 1 million, you are subject to corporate tax and must register.
Common Exemption Mistakes
❌ "My free zone company is exempt"
Not automatically. You may qualify for 0% as a QFZP, but you must still register, file, and meet all 6 conditions annually.
❌ "My revenue is under AED 375K so I don't need to register"
Wrong. Registration is mandatory regardless of revenue. The AED 375K threshold only determines whether tax is payable, not whether you must register and file.
❌ "My business had a loss, so I'm exempt"
Losses do not create an exemption. You must still register, file, and report. However, losses can be carried forward to offset future taxable income.
Frequently Asked Questions
Yes. All UAE businesses — active or dormant — must register for corporate tax. Dormancy does not create an exemption. Late registration carries an AED 10,000 penalty.
No. Foreign companies with a permanent establishment (branch) in the UAE are subject to corporate tax on their UAE-sourced income. They must register and file.
AED 10,000 for late registration. AED 500 per month for late filing, with no cap. These penalties accumulate regardless of whether any tax is actually owed.