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Exempt Person: failure to meet conditions

Applies
FY2024 onwards
Reviewed
Rule
UAE-CT-EXEMPT-FAIL-2024.1
By

What happens when a UAE Exempt Person fails its conditions?

It stops being exempt from the start of that tax period, or that day if avoidance was the aim, unless it is liquidating or the lapse is promptly fixed.

Per Federal Decree-Law No. 47 of 2022, Article 4, Exempt Person

Where an Exempt Person fails to meet the conditions of its exemption, it ceases to be an Exempt Person from the beginning of the tax period in which the failure occurs — or, where the failure has a tax-avoidance purpose, from the day of the failure. It remains exempt where the failure is due to a liquidation or termination, or is temporary and will be promptly rectified.

The rule fixes when exemption is lost, which determines the first period brought into charge. A temporary or liquidation-related failure is forgiven; a failure engineered for a tax advantage is treated most strictly, from the day it happens.

The three rules on failure

General rule

  • Ceases to be an Exempt Person from the beginning of the tax period in which the conditions were not met

Special rule — tax-avoidance purpose

  • Ceases to be an Exempt Person from the day of the failure, where the failure has a tax-avoidance purpose

Exception — remains exempt

  • The failure is due to a liquidation or termination
  • Or the failure is temporary and will be promptly rectified — meeting the FTA's conditions

Order of testing

  1. 1

    Inputs requiring your determination

    Any input a person must decide and has not decided stops the computation. An undecided input is never read as a no.

  2. 2

    No failure

    Where the conditions have not failed, the person remains an Exempt Person and nothing else is tested.

  3. 3

    Special rule — tax-avoidance purpose

    Where the failure has a tax-avoidance purpose, exemption ceases from the day of the failure. Tested before the exception: a failure engineered for a tax advantage is not the kind the exception forgives.

  4. 4

    Exception — liquidation or temporary failure

    Where the failure is due to a liquidation or termination, or is temporary and will be promptly rectified, the person remains exempt.

  5. 5

    General rule

    Otherwise, exemption ceases from the beginning of the tax period in which the conditions were not met.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

A conditions failure, no avoidance, no exception

An Exempt Person breaches an ongoing condition of its exemption, with no tax-avoidance purpose and no liquidation or temporary-rectification exception.

Computed

Ceases to be an Exempt Person from the beginning of the tax period in which the conditions were not met, as computed, based on the determinations you supplied.

Decided by the general rule

Temporary failure, promptly rectified

The person briefly falls out of a condition but rectifies it promptly, within the FTA's conditions.

Computed

Remains an Exempt Person as computed: an exception in Ministerial Decision No. 105 of 2023 applies. On a liquidation or termination the Person stays exempt until it completes and ceases to be exempt the day after; on a temporary failure, continuing exemption depends on the Authority's decision on the application. Based on the determinations you supplied.

Decided by the exception — liquidation or temporary failure

Failure with a tax-avoidance purpose

The conditions are failed as part of an arrangement whose purpose is a tax advantage.

Computed

Ceases to be an Exempt Person from the day of failure as computed: the failure has a tax-avoidance purpose, based on the determinations you supplied.

Decided by the special rule — tax-avoidance purpose

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Not computed yet

1 input still need your determination:

  • Has the person failed to meet its exemption conditions?

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Sources

Share this rule

Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader