Corporate Tax Exemption Criteria Under UAE FTA Decision 15/202

The Federal Tax Authority's Decision No. 15 of 2026 defines the corporate-tax exemption criteria in the United Arab Emirates. To qualify, a taxpayer must meet the substantive economic-presence test and provide full documentation, as required by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, which applies nationwide.

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WHAT ACTIVITIES DOES FTA DECISION NO. 15 OF 2026 TREAT AS EXEMPT FROM CORPORATE TAX?

The decision expressly exempts three categories of income when the taxpayer can demonstrate genuine economic substance in the UAE:

1. Qualifying holding-company activities - income derived from owning shares in subsidiaries, provided the entity actively directs investment, monitors performance and manages risk from within the UAE.
2. Intra-group financing - interest, fees or other remuneration earned from lending to, or borrowing from, related parties, where the financing function is strategically managed and administered locally.
3. Qualifying intellectual-property management - royalties, licence fees or similar receipts arising from the development, enhancement, maintenance or exploitation of IP, when the substantive IP work is performed in the UAE.

To claim any of these exemptions the taxpayer must satisfy the three-pronged substantive test:

• (i) Core income-generating activities are conducted in the UAE - the decisive functions that create the exempt income must be carried out on UAE soil.
• (ii) Adequate qualified personnel and proportionate operating expenses are maintained locally - the entity must employ a sufficient number of suitably skilled staff and incur costs that reflect the scale and nature of the activity.
• (iii) Strategic decision-making resides with the board of directors in the UAE - board meetings, resolutions and oversight must occur within the country, with minutes retained as evidence.

Documentary proof is not optional; the FTA expects board minutes showing UAE-based decisions, employment contracts, payroll records, lease agreements for office premises, and detailed expense analyses that tie each cost directly to the exempt activity. If any element of the test is unmet, the income reverts to the standard corporate-tax rate of nine percent.

HOW DOES A TAXPAYER DEMONSTRATE ECONOMIC SUBSTANCE FOR A HOLDING-COMPANY EXEMPTION?

A holding company seeking exemption must prove that it is more than a passive shareholder. The decision requires the entity to:

• Make substantive investment decisions - approving acquisitions, disposals, capital injections or divestments from the UAE.
• Monitor subsidiary performance - reviewing financial statements, assessing operational KPIs and providing guidance from UAE-based managers.
• Manage risk - overseeing treasury, foreign-exchange, credit and compliance risks through UAE-resident personnel.

Specific thresholds are prescribed:

• At least two directors must be UAE residents and board meetings must be held in the UAE with proper minutes retained.
• The company must employ no fewer than one full-time qualified employee whose role encompasses treasury, risk-management or comparable functions.
• Annual operating expenses linked to the holding function must exceed a minimum of 20 % of the UAE-sourced income attributable to that activity. This percentage is not arbitrary; it reflects the FTA's view that a holding company should incur commensurate local costs to justify the exemption.

Supporting evidence includes signed employment contracts, UAE-based utility bills, bank statements evidencing local salary payments, and detailed cost-allocation schedules that demonstrate how each expense (office rent, professional fees, staff remuneration) directly supports the holding-company function.

If the entity merely holds shares without exercising any of the above functions, the FTA treats the dividend or capital-gain income as passive investment income, subject to the standard nine percent corporate tax. In such cases the taxpayer must file a corporate-tax return, compute taxable income, and settle any liability within nine months after the fiscal year-end.

WHAT DOCUMENTATION IS REQUIRED TO SUPPORT AN INTELLECTUAL-PROPERTY EXEMPTION CLAIM?

For IP-related activities the exemption hinges on proving that the UAE entity performs substantive work-not merely holding IP rights. The decision mandates the following evidentiary bundle:

• Research-and-development agreements with UAE-based universities, research institutes or contracted service providers, showing that the UAE party contributes to the creation or improvement of the IP.
• Timesheets and payroll records allocating a measurable portion of employee effort to IP projects, preferably broken down by task (e.g., coding, design, testing).
• Invoices for UAE-based services such as legal protection (trademark filings, patent prosecution), marketing, branding or technical support that are directly tied to the IP.
• Proof of royalty or licence receipts from UAE-resident licensees, demonstrating that the income flows from local exploitation.
• A transfer-pricing study that benchmarks the remuneration for IP services against arm's-length comparables, ensuring that the fees charged to related parties are consistent with market rates.

All documents must be retained for a minimum of five years and made promptly available to the FTA upon request. The authority may also request supplemental information, such as project plans, milestone reports or evidence of ongoing maintenance activities, to substantiate the claim that the IP work is substantive and not merely administrative.

HOW DOES A TAXPAYER APPLY FOR CORPORATE-TAX EXEMPTION UNDER THE DECISION?

The application process is conducted exclusively through the FTA's online portal. The taxpayer must:

1. Complete the exemption-application form, which captures basic entity details, the nature of the claimed activity and the fiscal period for which relief is sought.
2. Submit the substantive-substance questionnaire, a structured checklist that forces the applicant to address each limb of the economic-presence test.
3. Attach the supporting documentation outlined in the sections above (board minutes, employment records, expense analyses, IP evidence, etc.).

The FTA commits to reviewing the submission within sixty working days. During this window the authority may issue a request for additional information (RAI); timely and thorough responses are essential to avoid delays.

If the exemption is granted, it takes effect prospectively from the date of the decision, unless the taxpayer elects an alternative effective date. Such an election must be made before the commencement of the fiscal year to which the exemption will apply.

Ongoing compliance is mandatory: any material change that could affect the substance test-such as a relocation of board meetings, a reduction in qualified staff, or a significant shift in operating expenses-must be notified to the FTA within thirty days. Failure to do so may trigger withdrawal of the exemption, retroactive assessment of tax on previously exempted income, and the imposition of administrative penalties (up to 50 % of the tax due).

FREQUENTLY ASKED QUESTIONS

Does FTA Decision No. 15 of 2026 apply to free-zone companies?
Yes. The decision's scope encompasses every entity registered in the UAE, irrespective of whether it is situated in a free zone or on the mainland. Free-zone companies must still satisfy the three-pronged substantive test: demonstrate UAE-based direction and management, incur adequate local expenditure, and employ suitably qualified staff. Merely benefitting from a free-zone tax holiday does not automatically confer corporate-tax exemption under this decision.

What happens if an entity fails the economic-substance test after obtaining exemption?
The FTA may withdraw the exemption effective the date on which the substance deficiency is identified. The authority will then assess corporate tax on the income that had previously been treated as exempt for the relevant period, applying the standard nine percent rate. In addition, administrative penalties of up to fifty percent of the tax due may be levied. Taxpayers have a thirty-day window to submit a voluntary disclosure, which can mitigate penalties if the disclosure is made promptly and in good faith.

Are dividends received from foreign subsidiaries exempt under the decision?
Dividends qualify for exemption only when the recipient entity fulfills the holding-company substance test. Mere receipt of dividends without active UAE-based management, investment decision-making or risk oversight does not meet the criteria. Consequently, the dividend income would be subject to the standard corporate-tax rate unless the holding-company substance requirements are satisfied.

Is there a minimum period of activity required before exemption can be claimed?
The decision does not prescribe a fixed duration; however, the substance must exist at the precise moment the income is earned. Retrospective claims are not permitted unless the taxpayer can furnish convincing evidence that the requisite economic presence was in place during the period in question.

Can an entity claim exemption for multiple activities simultaneously?
Absolutely. A taxpayer may seek exemption for each qualifying activity-holding-company functions, intra-group financing, and IP management-provided that every activity independently satisfies the substantive-substance test and maintains its own distinct documentation set. The FTA evaluates each claim on its own merits; approval for one activity does not automatically extend to another.

What are the consequences of providing false documentation to support an exemption claim?
Submitting fabricated or misleading information constitutes a breach of the Tax Procedures Law and may attract criminal prosecution, substantial fines, and a permanent denial of the exemption. The FTA treats such conduct seriously, and penalties can include both financial sanctions and, in severe cases, custodial sentences.

By adhering strictly to the substance-over-form approach outlined in FTA Decision No. 15 of 2026, businesses can determine with confidence whether their UAE-based operations merit a corporate-tax exemption. The key lies in aligning genuine economic presence-demonstrated through local decision-making, qualified staffing, and proportionate expenditure-with meticulous record-keeping that survives FTA scrutiny. Only then can the exemptions for holding-company income, intra-group financing, and IP-related receipts be secured and maintained in compliance with UAE tax law.

If your matter involves corporate tax exemption in the United Arab Emirates, you are welcome to request a consultation with Nour Attorneys. Our team can assess your position under the law currently in force and outline the options available to you. Request a consultation

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