UAE Corporate Tax of Natural Persons | Humayun Atif (CMA,CPA)

The UAE Corporate Tax Law provides the legislative basis for imposing a federal tax on corporations and Business profits.

Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law”) was issued on 3 October 2022 and in addition to that we have following guidelines for natural persons.

Guideline issued in November 2023 on ‘Taxation of Natural Persons under the Corporate Tax Law’.
Guideline issued in December 2023 addressing registration of natural persons.
Guideline issued in February 2024 addressing timeline for registration.
Public clarification issued on June 4, 2024, on registration timelines for Corporate Tax.

Based on above guidelines I have summarized few vital points in my article, but all these guidelines must be carefully reviewed before making any decision.

Who is a Natural Person?

The term natural person takes its ordinary meaning and refers to an individual or living human person of any age, whether resident in the UAE or elsewhere. For minors or incapacitated individuals, the Corporate Tax obligations shall be fulfilled by their legal representative.

CT Law applies to natural persons to the extent they are conducting a Business or Business Activity in the UAE, have a Permanent Establishment in the UAE, or derive State Sourced Income.

Further, the Corporate Tax Law applies to natural persons that derive annual Turnover exceeding AED 1 million, regardless of their citizenship or visa status.

Juridical Persons

Juridical Persons are entities that have a separate legal personality from their owners such as Limited Liability Companies (LLCs), Private Shareholding Companies (PSCs) and Public Joint Stock Companies (PJSCs).

Ownership of a juridical person by a natural person does not in itself make the natural person a Taxable Person.

Sole proprietorship

A sole proprietorship is a type of Businesses owned and conducted by a natural person on his/her own account and in their own name. For Corporate Tax purposes,

the sole proprietorship and the natural person are one and the same because of their direct control and relationship.
the natural person conducting the Business will be the Taxable Person, not the sole proprietorship itself.

Categories of Natural Persons

Natural person can be:

Resident Person
Non-Resident Person

When a natural person resides in the UAE and conduct business or business activities in the UAE, they are considered to be a Resident Person whereas, when a natural person resides outside the UAE, they become a Resident Person for Corporate Tax purposes if they conduct Business or Business Activity in the UAE. For natural persons, physical residence in the UAE, whether by virtue of citizenship or a residency visa, is not the criterion that determines whether they are Resident Persons for Corporate Tax purposes, or whether their income is taxable, but it also consider other factors and related articles must be read carefully to understand the requirements.

Scope

A guideline issued in December 2023 has clearly mentioned that Corporate Tax is a self-assessment regime and therefore a natural person is responsible for assessing whether they are within the scope of Corporate Tax and if yes then they are required to register for CT.

A natural person will fall within the scope of Corporate Tax where he / she :

carries on a Business or Business Activity in the UAE in respect of which he/she derives a total Turnover in excess of AED One million within a Gregorian calendar year and the Turnover is not derived from any of the below sources:
Wages,
Personal Investment, and
Real Estate Investment.

Please also note that where several Businesses or Business Activities are conducted by one natural person, the aggregate of all Businesses and Business Activities will be considered when determining whether it exceeds the AED One million annual turnover threshold.

Tax Rate

When the Turnover derived by the natural person in a Gregorian calendar year exceeds the AED 1 million, the Taxable Income of a natural person will be subject to Corporate Tax at the following rates:

0% on the portion of the Taxable Income not exceeding AED 375,000.
9% on the portion of the Taxable Income that exceeds AED 375,000.

The term Turnover is defined as the gross amount of income derived during a Gregorian calendar year. This means that the total Turnover is the sum of all the income before any costs are deducted.

Computation of Turnover

Turnover means gross income derived during a Gregorian calendar year from all the categories of Businesses or Business Activities that they conduct should be taken into consideration and it includes income derived from a sole proprietorship or their share of income from a fiscally transparent Unincorporated Partnership.

What Income is Exempt for Natural Persons ?

There are certain types of incomes which are exempt from Corporate Tax for natural persons, and they are:

Wage,
Personal Investment income, and
Real Estate Investment income.

Wage

The wages and bonuses that are given to the employee in consideration of their services under the employment contract or in accordance with the applicable legislation in the UAE.

Personal Investment

Investment activity that a natural person conducts from their personal account that is neither conducted through a Licence or requiring a Licence from a Licensing Authority in the UAE, nor considered as a commercial business in accordance with the Commercial Transactions Law.

Examples:

If a natural person invests in shares of stock exchange and earn gains, then no tax as it’s a personal investment and requires no license to trade in stock market.
If a natural person sells his personal car and makes profit, then no tax as its from his personal account and requires no license.
If a natural person invested money in a assets management company from his savings and earns portfolio income, then it will be exempted as it will fall under personal investment.

Real Estate Investment

Any investment activity conducted by a natural person related to, directly or indirectly, the sale, leasing, sub-leasing, and renting of land or real estate property in the UAE that is not conducted or does not require to be conducted through a licence from a Licensing Authority.

Examples:

If a natural person sells his apartment and make profits, then no tax as no license required to sell his personal property.
If a natural person is earning rental income from his property, then there will be no tax as it’s a real estate investment income.

Tax Period for Natural Person

The Tax Period of a natural person who conducts a Business or Business Activity that is subject to Corporate Tax, shall be the Gregorian calendar year. The Gregorian calendar year runs from 1 January until 31 December and the filing deadline are within nine months of the end of tax period.

Family Foundation

Natural persons can set up a Family Foundation to hold and manage personal assets and investments for assets protection.

The principal activity of a Family Foundation would generally be to receive, hold, invest, disburse, or otherwise manage funds and assets associated with savings or investment for the interest of individual.

FTA requires these foundations to demonstrate that their primary purpose is not to avoid corporate tax.

More details can be seen in my blog on Family Foundation at:

What is Small Business Relief ?

Small Business Relief is also applicable for natural persons, but relevant conditions need to be satisfied, including the fact that the Revenue from the taxable Business or Business Activity of the natural person in the relevant Tax Period and all previous Tax Periods does not exceed AED 3 million for each Tax Period. Relief may in the form of

Treated as not having derived any Taxable Income, and
Transfer pricing documentation may not require but still needs to comply with the arm’s length principle.

Please also note that eligibility for Small Business Relief is based on the Taxable Person’s overall Revenue, irrespective of the number of Businesses or Business Activities carried out by the Taxable Person.

Related Parties

A natural person can be a Related Party of one or more natural or juridical persons and the transactions of a natural person with Related Parties are required to follow the arm’s length principle for the purposes of Corporate Tax.

Record Keeping

Taxable Persons and Exempt Persons must keep records and documents for seven years following the end of the Tax Period to which they relate.

Financial Statements & Audits

The Financial Statements should be prepared based on the aggregation of all the Business and Business Activities subject to Corporate Tax that are conducted by the natural person.
A natural person that is a Taxable Person shall prepare standalone Financial Statements in accordance with International Financial Reporting Standards (“IFRS”).
Where natural persons derive Turnover exceeding AED 50 million, they must prepare and maintain audited Financial Statements for the relevant Tax Period.

Registration Obligations and process of registration for natural persons please review my blog: https://accountingblogger.com/uae-corporate-tax-registration/

UAE Corporate Tax Registration of Natural Persons | Humayun Atif (CMA,CPA)

ABOUT THE AUTHOR

Humayun Atif | CMA, CPA, CA (FIN), MS-IT, CA Articles from Big 4, Certified Forensic Accountant (USA), Six Sigma & Oracle Certified.

Atif is passionate about Business, Tech, and the written word. He is the author of the book ‘IFRS Made Easy’. He is a tax and IFRS coach and the founder of accountingblogger.com