In brief
Exempt Person Foreign Investment is an important UAE Corporate Tax topic for Government Entities, Government Controlled Entities, Qualifying Investment Funds, pension funds, and social security funds that hold foreign entities or foreign investment vehicles.
Cabinet Decision No. 55 of 2025 expanded the UAE Corporate Tax exemption framework to include certain foreign entities that are wholly owned and controlled by specific Exempt Persons, subject to conditions. The Ministry of Finance confirmed that the change aims to ensure equal tax treatment between UAE and foreign entities owned by certain Exempt Persons.
Cabinet Decision No. 55 of 2025 forms part of the broader UAE Corporate Tax reforms introduced in recent years. For a wider overview of legislative developments, see our guide on UAE Tax Updates 2026: 9 Critical Compliance Changes Businesses Must Know.
The exemption is not automatic. A foreign entity must satisfy ownership, control, and activity conditions before it can be treated as an Exempt Person for UAE Corporate Tax purposes.
Table of contents
- What changed under Cabinet Decision No. 55 of 2025
- Which Exempt Persons are covered
- Conditions for foreign entities
- Ownership and control test
- Corporate Tax compliance considerations
- Practical documentation checklist
- Common risk areas
- FAQs
1. What changed under Cabinet Decision No. 55 of 2025?
Before Cabinet Decision No. 55 of 2025, the UAE Corporate Tax exemption framework was limited to entities incorporated in the UAE. Foreign entities, even if wholly owned by certain exempt entities, were not eligible for exemption. The Ministry of Finance has now confirmed that Cabinet Decision No. 55 of 2025 expands the exemption to certain foreign entities owned by specific Exempt Persons.
The Federal Tax Authority’s Corporate Tax legislation page also lists Cabinet Decision No. 55 of 2025 as a Corporate Tax decision on exempting certain persons from Corporate Tax.
PTG Insight
This is a targeted exemption. It does not apply to all foreign subsidiaries, holding companies, or investment vehicles. The foreign entity must be linked to a qualifying Exempt Person and must meet the required conditions.
2. Exempt Person Foreign Investment eligibility
The foreign entity must be wholly owned and controlled by an Exempt Person covered by the relevant categories under Article 4 of the UAE Corporate Tax Law.
These include:
| Exempt Person category | Practical meaning |
|---|---|
| Government Entity | A qualifying UAE government body |
| Government Controlled Entity | A qualifying entity controlled by government |
| Qualifying Investment Fund | An investment fund meeting Corporate Tax conditions |
| Pension or social security fund | Public or qualifying private pension / social security fund |
The FTA’s Exempt Person page identifies key Exempt Person categories, including Qualifying Investment Funds, public or private pension and social security funds, and wholly owned and controlled subsidiaries of certain Exempt Persons.
PTG Insight
The first step is to confirm the status of the UAE owner. If the UAE owner is not within the relevant Exempt Person category, the foreign entity should not assume exemption.
3. Conditions for foreign entities held by Exempt Persons
A foreign entity may qualify where it is incorporated or established under foreign legislation and is wholly owned and controlled by the relevant Exempt Person.
It must also meet at least one of the following conditions:
| Condition | Requirement |
|---|---|
| Exempt activity condition | It undertakes part or all of the activities of the relevant Exempt Person |
| Investment condition | It is engaged exclusively in holding assets or investing funds for the benefit of the Exempt Person.
|
| Ancillary activity condition | It only carries out activities ancillary to those carried out by the Exempt Person |
PTG Insight
The activity condition is the key compliance test. A foreign entity that carries out unrelated commercial activities may fall outside the exemption, even where it is legally owned by an Exempt Person.
4. Why ownership and control matter
The exemption requires both wholly owned and controlled status.
This means the analysis should not stop at shareholding. Tax professionals should also review:
- Voting rights
- Board appointment rights
- Reserved matters
- Economic entitlement
- Constitutional documents
- Shareholder agreements
- Governance and approval powers
Where foreign subsidiaries or special purpose vehicles are involved, businesses should also assess the UAE Corporate Tax implications of foreign structures, including effective management and control, participation exemption and transfer pricing. Read our guide on UAE CFC Rules and Corporate Tax Risks for Foreign Subsidiaries and SPVs for a detailed analysis.
PTG Insight
A foreign entity may be legally owned by an Exempt Person but still require careful review if governance rights are restricted, shared, or subject to third-party approval.
5. UAE Corporate Tax compliance considerations
Exempt status does not mean there is no compliance file.
The FTA notes that some Exempt Persons are not required to register unless they undertake a taxable business, while other Exempt Persons may have registration obligations.
The FTA has also emphasised that Exempt Persons required to register should submit annual declarations within nine months from the end of their financial year.
PTG Insight
Exempt Persons should maintain a Corporate Tax governance file covering exemption status, foreign entity ownership, control, permitted activities, and any registration or declaration obligations.
Proper documentation is increasingly important following the amendments to the UAE Tax Procedures Executive Regulation. Our article on UAE Tax Procedures Update (Cabinet Decision No. 17 of 2026) explains the latest record-keeping and compliance requirements.
6. Documentation checklist for Exempt Person Foreign Investment
Tax professionals should maintain the following documents:
| Document | Purpose |
|---|---|
| Group structure chart | To evidence ownership and control |
| Incorporation documents | To confirm foreign legal status |
| Share register | To support full ownership |
| Constitutional documents | To review rights and restrictions |
| Board minutes | To evidence governance and approvals |
| Investment policy | To support investment purpose |
| Financial statements | To support income and asset use |
| Management representation | To confirm facts and activity scope |
| Tax position memo | To document exemption analysis |
| Compliance calendar | To monitor registrations, declarations, and changes |
PTG Insight
The exemption position should be documented before filing or declaration deadlines, not only after an FTA query.
7. Common risk areas
Assuming all foreign subsidiaries qualify
Not every foreign entity owned by an Exempt Person qualifies. The foreign entity must satisfy the ownership, control, and activity conditions.
Mixed activities
If the foreign entity performs unrelated commercial activities, the exemption may be at risk.
Weak control evidence
Control should be supported by legal and governance documents, not only management statements.
No ongoing monitoring
A foreign entity may qualify at one point but lose eligibility if ownership, control, or activities change.
Practical impact for UAE tax professionals
Exempt Person Foreign Investment should be reviewed using a structured approach:
| Review area | Key action |
|---|---|
| Exempt Person status | Confirm the UAE owner’s Article 4 category |
| Foreign entity status | Confirm legal form and jurisdiction |
| Ownership | Confirm 100% ownership by the relevant Exempt Person |
| Control | Review voting rights, board control, and reserved matters |
| Activity scope | Confirm only permitted activities are performed |
| Investment purpose | Confirm assets or funds are held for the Exempt Person’s benefit |
| Compliance | Review registration and declaration obligations |
| Monitoring | Track changes in ownership, control, and activity profile |
Organisations investing through qualifying foreign entities should also evaluate whether other Corporate Tax incentives are available. Our article on UAE R&D Tax Credit 2026 explains the latest R&D incentive framework
How PTG Consultant L.L.C can support
PTG Consultant L.L.C can assist with:
- Exempt Person foreign investment review
- Cabinet Decision No. 55 of 2025 eligibility assessment
- Ownership and control analysis
- Foreign entity activity review
- Corporate Tax exemption memo
- Registration and declaration support
- Tax governance documentation
- Audit-ready Corporate Tax files
Official UAE sources
The following official UAE sources support the key points discussed in this article:
- Ministry of Finance announcement on Cabinet Decision No. 55 of 2025 — confirms expansion of the Corporate Tax exemption to certain foreign entities owned by specific Exempt Persons.
- FTA Corporate Tax legislation page — lists Cabinet Decision No. 55 of 2025 under Corporate Tax legislation.
- FTA Corporate Tax Topics — Exempt Person — provides Exempt Person categories and registration-related guidance.
- FTA Corporate Tax Topics page — includes Exempt Person and failure-to-meet-conditions topics.
- FTA update on Exempt Persons annual declarations — notes that Exempt Persons required to register should submit annual declarations within nine months from the end of their financial year.
Frequently Asked Questions
What is Exempt Person Foreign Investment?
It refers to the UAE Corporate Tax treatment of foreign entities held by certain Exempt Persons, where the foreign entity may qualify for exemption if ownership, control, and activity conditions are met.
Does Cabinet Decision No. 55 of 2025 apply to all Exempt Persons?
No. It applies only to foreign entities wholly owned and controlled by specific Exempt Persons under the UAE Corporate Tax framework.
Can a foreign entity qualify if it only holds assets?
Yes, provided it is engaged exclusively in holding assets or investing funds for the benefit of the relevant Exempt Person and meets the other conditions.
Can a foreign entity perform unrelated commercial activities?
This may put the exemption at risk. The foreign entity should only perform permitted activities under the applicable conditions.
Is Corporate Tax registration still relevant for Exempt Persons?
Yes, depending on the Exempt Person category and facts. Certain Exempt Persons may still be required to register or submit annual declarations.
Conclusion
Exempt Person Foreign Investment under UAE Corporate Tax is a focused exemption for certain foreign entities wholly owned and controlled by specific Exempt Persons.
The key tests are:
- Qualifying Exempt Person status
- Full ownership
- Control
- Permitted activity
- Ongoing compliance
For UAE tax professionals, the best approach is to document the exemption position clearly, maintain ownership and control evidence, monitor foreign entity activities, and ensure that any Corporate Tax registration or declaration obligations are addressed on time.
Disclaimer
This article is prepared for general information and professional discussion only.
It should not be treated as legal, tax, audit, or assurance advice.
The UAE Corporate Tax treatment of foreign entities held by Exempt Persons depends on the specific facts, legal structure, ownership, control, activity profile, and documentation.
Professional advice should be obtained before taking any exemption position or filing approach.