UAE Enacts First Ever Corporate Tax, Exempts Nonprofits

The United Arab Emirate (UAE) adopted its first ever entity level business tax late last year.  I hate to say it but it looks like His Highness Sheikh Mohamed bin Zayed Al Nahyan, President of the United Arab Emirates, whose decree established the law, did a cut and paste from Title 26.  I am not, by that observation, staking a claim to American exceptionalism to which other countries invariably aspire.  I mention the point because cutting and pasting necessarily takes the good with the bad.  For example, His Highness might have omitted “healthcare” as a separate basis for tax exemption.  One wonders if we, in the  United States, might decline to include “healthcare,” writ large, as an exempt purpose if we were writing on a clean slate.  To provide healthcare for poor people we might instead use direct subsidies more precisely aimed at need.  UAE’s law doesn’t suggest there was robust consideration of the good, bad, and ugly of our law.  And we all know how much trouble is caused by exempting entities operated for “the promotion of social welfare.”  But I guess a monarchy doesn’t have to worry about “dark money” political intervention.  Still, what exactly is “social welfare,” except charity with explicit politics?   Here is the provision of the law defining public benefit entities exempt from 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 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.

darryll jones