Is a charity exempt from Corporate Tax?

Article 9 – Qualifying Public Benefit Entity 1. A Qualifying Public Benefit Entity shall be exempt from Corporate Tax where all of the following conditions are met: a. It is established and operated for any of the following: 1) Exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational, healthcare, environmental, humanitarian, animal protection or other similar purposes. 2) As a professional entity, chamber of commerce, or a similar entity operated exclusively for the promotion of social welfare or public benefit. b. It does not conduct a Business or Business Activity, except for such activities that directly relate to or are aimed at fulfilling the purpose for which the entity was established. c. Its income or assets are used exclusively in the furtherance of the purpose for which it was established, or for the payment of any associated necessary and reasonable expenditure incurred. d. No part of its income or assets is payable to, or otherwise available, for the personal benefit of any shareholder, member, trustee, founder or settlor that is not itself a Qualifying Public Benefit Entity, Government Entity or Government Controlled Entity. e. Any other conditions as may be prescribed in a decision issued by the Cabinet at the suggestion of the Minister. 2. The exemption under Clause 1 of this Article shall be effective from the beginning Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 15 of the Tax Period in which the Qualifying Public Benefit Entity is listed in the Cabinet decision issued at the suggestion of the Minister or any other date determined by the Minister. 3. For the purposes of monitoring the continued compliance by a Qualifying Public Benefit Entity with the conditions of Clause 1 of this Article, the Authority may request any relevant information or records from the Qualifying Public Benefit Entity within the timeline specified by the Authority.

Qualifying Public Benefit Entity A Qualifying Public Benefit Entity is an organisation formed by private individuals, government or non-governmental bodies for carrying out religious, charitable, scientific, artistic, cultural, athletic, educational, healthcare, environmental, humanitarian, animal protection without the motive of making profit for distribution to private persons.20 In this regard, Cabinet Decision No. 37 of 2023 has been issued which specifies the Qualifying Public Benefit Entities for Corporate Tax purposes. Qualifying Public Benefit Entities listed in this Cabinet Decision must still register for Corporate Tax purposes and obtain a Corporate Tax TRN.21 The application to register for Corporate Tax purposes for Qualifying Public Benefit Entities will be available as of 1 October 2023.22 A Public Benefit Entity that is not listed in the Cabinet Decision as a Qualifying Public Benefit Entity will not be considered as an Exempt Person, and will be a Taxable Person. As a result, it should register for Corporate Tax according to its relevant entity type, for example as a resident juridical person. Example 8: A charity is established in the UAE Charity A is a licensed animal charity in Ras Al Khaimah. The charity meets all of the conditions set out in Article 9 of the Corporate Tax Law and would like to be considered as a Qualifying Public Benefit Entity and be exempt from Corporate Tax. Charity A is listed in Cabinet Decision No. 37 of 2023, and therefore, will be required to register for Corporate Tax in order to be eligible to be considered as a Qualifying Public Benefit Entity and exempt from Corporate Tax. 5.2.4. Exempt Persons upon application to the FTA Certain Persons may be exempt from Corporate Tax if they meet specific conditions. These Persons must make an application to the FTA to be exempt from Corporate Tax.23 The entities which may be exempt if an application is approved by the FTA are: 1. Public and private pension or social security funds; 2. Qualifying Investment Funds; 20 Article 9(1) of the Corporate Tax Law. 21 Article 51(2) of the Corporate Tax Law. 22 Article 2(1) of the FTA Decision No. 7 of 2023. 23 Article 4(3) of the Corporate Tax Law. Corporate Tax Guide I Registration of Resident Juridical Persons I CTGRJP1 20

other personal pecuniary gains. It does not preclude the payment of salaries or reimbursement of expenditure to Persons and their Connected Persons involved in the establishment or operation of the entity, provided that such expenditure is necessary and priced at arm’s length. Example 5: No personal benefit condition A social charity owns a hostel for the purpose of providing free or subsidised accommodation to people in need and with limited means. The charity’s officers regularly arrange for the hostel to be used to provide free accommodation for their own friends and relatives, without consideration to whether they satisfy the charity’s criteria. As an asset of the charity, the hostel accommodation should not be available for the personal benefit of its officers. In this example, even though the officers do not directly use the accommodation, they receive an indirect personal benefit by having the charity’s assets at their disposal to do as they wish, providing benefits to individuals they choose, without regard for the stated purpose of the charity. As such, the charity is in breach of the no personal benefit condition. Accordingly, the charity would fail to be a Qualifying Public Benefit Entity. 4.1.5. Listed in a Cabinet decision The definition of Qualifying Public Benefit Entity in the Corporate Tax Law requires that in addition to meeting the conditions in Article 9 of the Corporate Tax Law, the entity must be listed in a decision issued by the Cabinet at the suggestion of the Minister. Cabinet Decision No. 37 of 2023, issued on 7 April 2023, sets out a list of entities that are to be considered as Qualifying Public Benefit Entities for the purposes of the Corporate Tax Law.10 The Cabinet has the power to amend the list in the future at the suggestion of the Minister, making either additions or deletions to it.11 4.1.6. Monitoring compliance For the purposes of monitoring compliance with the exemption requirements, the FTA may request any relevant information or records from a Qualifying Public Benefit Entity to verify that the entity continues to meet the relevant conditions to be exempt from 10 Article 2(1) of Cabinet Decision No. 37 of 2023. The entities are listed in a schedule annexed to this Decision. 11 Article 3 of Cabinet Decision No. 37 of 2023. Corporate Tax Guide | Public Benefit Entities, Pension Funds & Social Security Funds | CTGEPF1 15