Introduction
On 2 May 2025, the UAE's Cabinet of Ministers ("Cabinet") issued Cabinet Decision No. 55 of 2025 on the Exemption of Certain Persons from Corporate Tax ("Cabinet Decision No. 55 of 2025"), further solidifying the framework for tax exemptions under the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses ("Corporate Tax Law").
Cabinet Decision No. 55 of 2025 introduces new categories of juridical persons that are exempt from Corporate Tax, pursuant to the discretionary powers granted to the Cabinet under Article 4(1)(i) of the Corporate Tax Law. The Decision reflects the UAE's evolving approach to corporate taxation balancing fiscal interests with the need to preserve certain economic, social, and public benefit functions.
Background
The Corporate Tax Law, which came into effect on 1 June 2023, outlines in Article 4 the categories of persons classified as "Exempt Persons". These exempt persons include, but are not limited to, federal and local government entities, government-controlled entities, pension or social security funds, qualifying investment funds, and certain public benefit entities that meet the requirements set out in the law.
A key provision is Article 4(1)(i) of the Corporate Tax Law, which grants the Cabinet discretionary authority to exempt "any other Person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister." This clause effectively enables the Cabinet to introduce additional exemptions as deemed appropriate, based on policy objectives or economic considerations.
Cabinet Decision No. 55 of 2025, issued pursuant to this discretionary power, marks a major step in the ongoing development and refinement of the UAE's Corporate Tax framework. By leveraging this flexibility, the Cabinet actively shapes the scope and structure of tax exemptions in alignment with national strategic goals such as attracting foreign investment and supporting specific sectors. This decision underscores the UAE's adaptive approach to tax policy, balancing fiscal regulation with broader economic and social imperatives.
Detailed Analysis
In this detailed analysis, we examine each of the key provisions of Cabinet Decision No. 55 of 2025, providing commentary on their implications.
Article 1
Article 1 of Cabinet Decision No. 55 of 2025, titled "Definitions", adopts and aligns its terminology with the definitions set out in the in the Corporate Tax Law. This deliberate alignment ensures legal consistency and facilitates seamless integration between the Cabinet Decision No. 55 of 2025 and the primary legislative framework which is the Corporate Tax Law.
This approach reflects best practices in legislative drafting, where subordinate legislation draws on definitions in primary legislation to maintain clarity and regulatory harmony.
Article 2
Article 2 of Cabinet Decision No. 55 of 2025, titled "Exemption from Corporate Tax", outlines the specific juridical persons eligible for Corporate Tax exemption under this Decision, thereby clarifying the boundaries of its application.
On a prima facie view of the provisions of Article 2 referenced above, it appears that this legal provision applies to entities that are incorporated or established outside the UAE, provided they meet certain conditions. Specifically, these foreign entities must be wholly owned and fully controlled by an Exempt Person, as defined under paragraphs (a), (b), (f), and (g) of Article 4(1) of the Corporate Tax Law. These paragraphs typically refer to government entities, government-controlled entities, pension or social security funds, and investment funds.
To qualify for the exemption, the foreign entity must restrict its operations to one or more of the following activities:
- Conduct the same or part of the same activities as the Exempt Person it is owned by.
- Hold assets or invest funds exclusively for the benefit of the Exempt Person.
- Perform ancillary activities that support those carried out by the Exempt Person.
This provision ensures that certain foreign entities, though technically taxable persons, are treated as extensions of exempt entities and do not attract Corporate Tax in the UAE, as long as they serve only the exempt entity's purposes and do not engage in unrelated commercial activity.
Article 3
Article 3 of Cabinet Decision No. 55 of 2025, titled "Publication and Effectiveness of the Decision," establishes that Cabinet Decision No. 55 of 2025 will be published in the Official Gazette and will come into effect retroactively from 1 June 2023, providing a clear timeline for the implementation of the new regulations.
In Brief
Cabinet Decision No. 55 of 2025 represents a notable broadening of the categories exempt from Corporate Tax, particularly by recognizing certain foreign entities wholly owned and controlled by exempt persons. By extending exemptions retroactively from 1 June 2023, the decision provides legal certainty and clarity for entities operating within this framework.
This move further demonstrates the UAE's commitment to creating a supportive and predictable tax environment for entities involved with government and government-controlled entities, as well as qualifying investment and pension funds. As the UAE's Corporate Tax regime continues to mature, additional exemptions under Article 4(1)(i) are likely, and affected entities should actively monitor these developments and ensure compliance with the new regulatory requirements.
This Article is prepared by the Tax Department at Habib Al Mulla & Partners Law Firm, led by Mohamed El Baghdady, Partner and Head of Tax and Financial Crimes.
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