Key takeaway: “Exempt” does not mean “no obligations.” Every category above still requires some form of registration, filing, or documentation. Failure to comply triggers corporate tax penalties starting at AED 10,000. This classification is referenced and explained in detail across the sections below, with the precise legal source for each category.

Article 4 of the Corporate Tax Law defines the categories of persons that are fully excluded from the tax. “Fully excluded” means all of their income is outside the scope of corporate tax. But even exempt persons have compliance obligations. Here is each category:

Government Entities

Federal and local government bodies, ministries, departments, authorities, and public institutions are automatically exempt on sovereign functions. However, if a government entity operates a licensed commercial activity competing in the private market, that activity is taxed at 9%. Government entities may apply to have all commercial activities consolidated as a single Taxable Person.

Government-Controlled Entities

Entities listed by Cabinet Decision that are wholly owned and controlled (directly or indirectly) by a government entity. They must be engaged in a mandated activity and not operate commercial activities outside the approved list. Listed in Cabinet Decision No. 37 of 2023 (as amended).

Extractive and Non-Extractive Natural Resource Businesses

Oil, gas, and mineral extraction businesses subject to Emirate-level taxation are exempt from federal corporate tax to avoid double taxation. Non-extractive natural resource businesses (water, fisheries) are also exempt if they meet specific conditions under the CT Law.

Qualifying Public Benefit Entities (QPBEs)

Charities, religious organisations, cultural foundations, and educational institutions. They must be listed in a Cabinet Decision, operate for public benefit, not distribute profits to founders or shareholders, and maintain proper governance. Donations to listed QPBEs are deductible for the donor.

Qualifying Investment Funds

Investment funds (including REITs) that meet these conditions: regulated by a competent authority, diversified investments, subject to investment restrictions, and managed externally (not self-managed). The exemption eliminates double taxation at both fund and investor level. Investors are taxed on distributions, not at the fund level. This is particularly relevant for the growing REIT market in Abu Dhabi and Dubai.

Public and Private Pension / Social Security Funds

Must apply to the FTA for exempt status. Public pension funds are generally approved. Private funds must demonstrate they meet the qualifying conditions under the CT Law.

Wholly-Owned Subsidiaries of Exempt Persons

Subsidiaries that are wholly owned and controlled by a qualifying exempt person may also apply for exemption. Approval is at the FTA’s discretion and requires ownership and control documentation.

Qualifying Sports Entities (Cabinet Decision No. 1 of 2026)

Cabinet Decision No. 1 of 2026 was issued 12 January 2026 and announced by the Ministry of Finance on 9 February 2026. It applies retroactively from 1 June 2023, aligning with the start of the Corporate Tax regime. The exemption covers three entity types operating in the UAE under Federal Law No. 4 of 2023 on Sports:

• International Sports Entities recognised by the Ministry of Sports or a Competent Authority.
• Sports Entities wholly owned and controlled (directly or indirectly) by an International Sports Entity.
• Supporting Entities wholly owned and controlled by an International Sports Entity and established exclusively to carry out supporting activities.

The conditions are strict. The entity must operate on a non-commercial basis, must use all income and assets exclusively to further its sporting purpose (no private benefit to founders, shareholders, or trustees), and must obtain Corporate Tax registration before applying for the exemption.

Two operational deadlines matter:

• Application: Eligible entities must apply to the FTA within 60 business days from the end of the tax period in which they meet the exemption conditions.
• Annual declaration: Once approved, the entity must submit an annual declaration to the FTA within 9 months from the end of each relevant tax period confirming continued eligibility.

This is not a broad sectoral exemption. It is tied to regulatory oversight, ownership structure, and substance requirements. Sports organisations that filed FY2024 returns before this Decision was published should review their position and consider amended filings given the retroactive application.

This is the distinction that catches people: the entity is still taxable. Specific income streams are excluded from the taxable income calculation, but the entity must still register, file, and report that income on the return.

Qualifying Dividends (Participation Exemption)

Dividends received from UAE or foreign companies are exempt if the receiving company holds at least 5% ownership for a continuous period of 12 months or more. This prevents economic double taxation of corporate profits already taxed at the subsidiary level.

Qualifying Capital Gains

Capital gains from the disposal of shares in a subsidiary are exempt under the same participation exemption conditions: 5% ownership, held for 12 months or more.

Qualifying Foreign Branch Income

Income from a foreign branch may be exempt if the branch is subject to tax at 9% or higher in the foreign jurisdiction. This is an election made on the corporate tax return, not an automatic exemption.

Intra-Group Transfers (Qualifying Group Relief)

Transfers of assets or liabilities between members of a qualifying group (75% common ownership) can be made at net book value, deferring any gain or loss. There is a two-year clawback period. Neither entity can be an Exempt Person or QFZP.

Business Restructuring Relief

Mergers, spin-offs, and other corporate restructurings where a business or independent part is transferred in exchange for shares. Both entities must be UAE resident persons or have a PE in the UAE. Two-year clawback applies.

Important: Exempt income must still be reported on your corporate tax return. It is subtracted from taxable income during the corporate tax calculation process, but the obligation to report it remains. Omitting exempt income from the return invites FTA scrutiny.

Free Zone companies are not exempt from corporate tax. They are taxable persons who may qualify for a 0% rate on qualifying income. This is a preferential rate subject to strict conditions, not an exemption. The distinction matters because it determines your registration, filing, and compliance obligations.

The 5 QFZP Conditions (All Must Be Met)

To qualify as a QFZP, a Free Zone entity must meet all five of the following conditions continuously throughout the tax period. The framework was updated in 2025 and the current operative decisions are listed against each condition:

1. Be a Free Zone Person: a juridical person incorporated, established, or otherwise registered in a UAE Free Zone, including branches (Article 18, Federal Decree-Law No. 47 of 2022).
2. Maintain adequate substance in the Free Zone: sufficient employees, operating expenditure, and physical assets within the Free Zone to undertake the core income-generating activities (Article 18, FDL 47/2022).
3. Derive qualifying income as defined by Cabinet Decision No. 100 of 2023 (qualifying income definitions) and Ministerial Decision No. 229 of 2025 (qualifying activities and excluded activities). Ministerial Decision No. 229 of 2025 was issued on 28 August 2025 and applies retroactively from 1 June 2023. It repeals and replaces the earlier Ministerial Decision No. 265 of 2023.
4. Not elect to be treated as subject to standard Corporate Tax: the election is irrevocable for five consecutive tax periods once made.
5. Comply with transfer pricing rules (Articles 34-55, CT Law) and Ministerial Decision No. 97 of 2023, and prepare audited financial statements in accordance with Ministerial Decision No. 84 of 2025, applicable to tax periods commencing on or after 1 January 2025.

If your last QFZP review was in 2023 or early 2024, your compliance position should be reassessed against this updated framework before the next filing deadline.

The De Minimis Test

Non-qualifying revenue must not exceed 5% of total revenue or AED 5 million, whichever is lower. If breached, QFZP status is lost for five consecutive tax periods. All income during those five years is taxed at 9%. That is not a one-year correction. It is a five-year penalty. 

Filing Obligation

QFZPs must file a corporate tax return to maintain their status. Missing a corporate tax filing deadline risks loss of the 0% rate, which is a far more expensive consequence than the filing penalty itself.

DMTT Override for Large MNEs

Since 1 January 2025, large multinational enterprises with consolidated global revenue of EUR 750 million or more (in at least two of the four preceding fiscal years) are subject to the Domestic Minimum Top-Up Tax (DMTT). 

The framework was introduced by Federal Decree-Law No. 60 of 2023 (amending FDL 47/2022) and operationalised by Cabinet Decision No. 142 of 2024 with detailed DMTT Rules. It ensures a minimum effective tax rate of 15% on UAE profits, applying as a top-up over the standard 9% Corporate Tax. For in-scope MNEs, the QFZP 0% rate does not shield against this top-up. The DMTT return is due 15 months from the end of the fiscal year (18 months for the first year).

Reliefs are not exemptions. They reduce or defer your tax liability under specific conditions, but you remain a taxable person with full registration and filing obligations.

Small Business Relief (SBR)

Revenue of AED 3 million or less in the relevant tax period? You can elect to treat your taxable income as zero. But it must be actively elected on the return. It is not automatic. Available for tax periods ending on or before 31 December 2026. You cannot be a QFZP, Tax Group member, or MNE group member. And there is a trade-off: if you elect SBR, you cannot accrue, utilise, or transfer tax losses for that period, nor carry forward net interest expenditure. Full details on our Small Business Relief page.

Tax Group Relief

Parent must own 95% or more of voting rights and share capital of subsidiaries. The Tax Group files one consolidated return, and losses can transfer between members. All members must follow the same financial year. Neither parent nor subsidiary can be an Exempt Person or QFZP. This is particularly relevant for corporate groups with some entities in Free Zones and others on the mainland. The Free Zone entity’s QFZP status disqualifies it from joining the Tax Group, so the group structure must be designed with this limitation in mind from the start.

Tax Loss Carry-Forward

Losses carry forward indefinitely but can only offset up to 75% of taxable income in any future period. No carry-back is allowed. Losses must be documented and reported on each return. If you did not declare a loss in the period it occurred, you may lose the ability to claim it later.