By Alia Noor, FCMA, CGMA, MBA
UAE Registered Tax Agent | Associate Partner – Taxation & Compliance Advisory
Ahmad Alagbari Chartered Accountants
Under the UAE Corporate Tax regime, certain Persons may be treated as Exempt Persons where the relevant conditions under the Corporate Tax Law are satisfied.
But what happens when an Exempt Person enters liquidation or termination, or temporarily fails to meet one of the conditions required for its exemption? Does the Person immediately lose its exempt status?
Ministerial Decision No. 105 of 2023 addresses these circumstances by setting out conditions under which a Person may continue to be deemed an Exempt Person, as well as circumstances in which a Person may cease to be deemed an Exempt Person from a different date.
1. What Happens During Liquidation or Termination?
Entering liquidation or termination does not necessarily result in the immediate loss of Exempt Person status.
A Person undergoing liquidation or termination may continue to be deemed an Exempt Person from the date the liquidation or termination procedure starts until the date it is completed, provided that a notification is submitted to the Federal Tax Authority within 20 business days from the date the procedure begins.
The Person will cease to be deemed an Exempt Person on the day following the date on which the liquidation or termination procedure is completed.
The liquidation or termination procedure must be carried out in accordance with the applicable legislation in the UAE.
2. What If the Failure to Meet the Exemption Conditions Is Temporary?
A temporary failure to meet the relevant exemption conditions does not necessarily mean that the Person will immediately lose its exempt status.
A Person may continue to be deemed an Exempt Person where all of the prescribed conditions are satisfied, including:
- The failure to meet the relevant exemption conditions is due to a situation or event beyond the Person's control that the Person could not reasonably have predicted or prevented;
- The Person submits an application to the FTA to continue to be treated as an Exempt Person within 20 business days from the date it fails to meet the relevant exemption conditions;
- It is reasonably expected that the Person will rectify the failure to meet the conditions within 20 business days from the submission of the application; and
- Upon request by the FTA, the Person provides evidence supporting the procedures put in place to monitor compliance with the relevant conditions of the Corporate Tax Law within 20 business days from the date of the FTA's request, or within another period determined by the FTA.
Where the failure cannot be rectified within the initial period for reasons beyond the Person's reasonable control, the rectification period may be extended by an additional 20 business days.
The FTA will review the application and notify the Person of its decision within 20 business days from the submission of the application, or within such other period as may be required to review the application, provided that the Person is notified.
3. When Can a Person Cease to Be Deemed an Exempt Person?
Ministerial Decision No. 105 of 2023 also addresses circumstances in which a Person ceases to meet the conditions required to be an Exempt Person.
Where it can be reasonably concluded that the main purpose or one of the main purposes of ceasing to meet the relevant exemption conditions is to obtain a Corporate Tax advantage, as specified in Clause 2 of Article 50 of the Corporate Tax Law, that is not consistent with the intention or purpose of the Corporate Tax Law, the Person shall cease to be deemed an Exempt Person from the day it fails to meet those conditions.
This provision prevents the continuation and cessation rules from being used to obtain a Corporate Tax advantage that is inconsistent with the intention or purpose of the Corporate Tax Law.
4. Why Do These Rules Matter?
The key point is that not every failure to satisfy an exemption condition produces the same Corporate Tax consequence.
A Person undergoing a genuine liquidation or termination may continue to be deemed exempt during that process where the prescribed requirements are satisfied.
Similarly, where failure to meet an exemption condition is temporary, results from circumstances beyond the Person's control and satisfies the other requirements of Ministerial Decision No. 105 of 2023, the Person may be able to continue to be deemed an Exempt Person.
However, these provisions should not be viewed as an automatic extension of exempt status. The applicable conditions must be satisfied, and the prescribed timelines must be observed.
The 20-business-day timelines are particularly important. Depending on the circumstances, they may apply to notification, application, rectification and the provision of information requested by the FTA.
Conclusion
Exempt Person status under UAE Corporate Tax should not be assumed to continue automatically when circumstances change.
At the same time, entering liquidation or temporarily failing to satisfy an exemption condition does not necessarily mean immediate loss of exempt status.
Ministerial Decision No. 105 of 2023 provides specific rules dealing with these situations.
In practical terms:
Liquidation or termination may not result in the immediate loss of exempt status where the prescribed requirements are satisfied.
A temporary failure beyond the Person's control may not necessarily result in the loss of exempt status where the relevant conditions and timelines are met.
Where it can reasonably be concluded that ceasing to meet the conditions is mainly intended to obtain a Corporate Tax advantage inconsistent with the intention or purpose of the Corporate Tax Law, the Person ceases to be deemed exempt from the day it fails to meet the relevant conditions.
For Exempt Persons, the practical priority is therefore to monitor the conditions relevant to their exemption, identify changes in circumstances promptly and comply with the applicable notification and application timelines.
Disclaimer
This article is for general informational and educational purposes only and does not constitute tax, legal, accounting or professional advice. Whether a Person qualifies or continues to qualify as an Exempt Person depends on the applicable provisions of the UAE Corporate Tax Law, relevant Cabinet and Ministerial Decisions and the specific facts and circumstances. Professional advice should be obtained where appropriate.
Tags
UAE Corporate Tax, Corporate Tax UAE, Exempt Person, Exempt Person Status, Corporate Tax Exemption, Ministerial Decision 105 of 2023, UAE Tax, Federal Tax Authority, FTA, Ministry of Finance UAE, Corporate Tax Law, Tax Compliance, UAE Business, Tax Advisory
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