A UAE-incorporated juridical person is wholly owned and controlled by a Government Entity that is itself an Exempt Person under Article 4 of Federal Decree-Law No. 47 of 2022, and the subsidiary's sole activity is undertaking part of that Government Entity's mandated function. Under UAE Corporate Tax Law, what must this subsidiary do to become an Exempt Person in its own right?
- Nothing further; wholly-owned and controlled subsidiaries of a Government Entity are automatically exempt the moment the ownership and control conditions are met
- It must instead register for Small Business Relief, since a wholly-owned government subsidiary cannot be exempt on its own account
- It must apply to, and be approved by, the Federal Tax Authority, and continue to satisfy the conditions in Article 4, since exemption for such subsidiaries is not automatic
- It must obtain a Cabinet Decision naming it individually as a Government Controlled Entity, the same route used for the parent Government Entity
Why C? And why not the others?
Correct answer: C. It must apply to, and be approved by, the Federal Tax Authority, and continue to satisfy the conditions in Article 4, since exemption for such subsidiaries is not automatic
Article 4 exempts Government Entities and Government Controlled Entities, and separately allows a UAE-incorporated subsidiary that is wholly owned and controlled by certain Exempt Persons, including a Government Entity, to become exempt itself, but only where the subsidiary applies to the Federal Tax Authority, the Authority approves the application, and the subsidiary continues to meet the relevant conditions (such as undertaking part or all of the parent's mandated activity). The option treating exemption as automatic on meeting ownership and control alone is wrong because Article 4 makes Federal Tax Authority approval a required step for this category of subsidiary, not a formality that follows automatically. The option redirecting the subsidiary to Small Business Relief is wrong because that relief is an unrelated regime for small resident taxable persons below a revenue threshold and has nothing to do with exemption for government-owned subsidiaries. The option requiring an individual Cabinet Decision naming the subsidiary as a Government Controlled Entity is wrong because that designation route applies to entities the Cabinet specifies as Government Controlled Entities in their own right, not to ordinary wholly-owned subsidiaries, which instead follow the Federal Tax Authority application route.
Source: UAE Federal Decree-Law No. 47 of 2022, Article 4 (Exempt Person)