The introduction of the Corporate Tax Law in the United Arab Emirates (UAE) has raised questions about its applicability to natural persons, or individuals, engaged in business activities.
The law aims to establish a fair and transparent tax regime, ensuring that all entities operating in the UAE contribute to the country’s economic development.
However, the concept of “natural person” and its implications for individual taxpayers require further clarification.
Who is a Natural Person under UAE CT?
The Corporate Tax Law defines a “natural person” as an individual. According to the UAE Federal Tax Authority,
A natural person will be subject to UAE Corporate Tax when performing any businessUltimate Business Setup Guide in Dubai or business activity that generates an annual turnover exceeding AED 1 million.
This provision applies regardless of the individual’s citizenship or visa status.
Whats not included?
It is important to note that certain forms of income received by natural persons are explicitly excluded from the Corporate Tax Law’s purview. These include:
- Employment Income: Salaries and wages earned from employment are not considered business activities and are therefore exempt from corporate tax.
- Personal Investment Income: Income derived from personal investments, such as interest, dividends, or capital gains, is not subject to corporate tax.
- Real Estate Investment Income: Rental income or gains from the sale of real estate properties held for investment purposes are also exempt from corporate tax for natural persons.
The Taxable Income of a natural person under the Corporate Tax Law encompasses all income derived from the business or business activity conducted within the UAE.
This includes income earned from outside the UAE, insofar as it relates to the individual’s business or business activity carried out in the UAE.
For example, if an individual runs a consulting firm in the UAE and generates an annual turnover exceeding AED 1 million, the income from this business activity would be subject to corporate tax.
However, if the same individual also receives rental income from a residential property owned for personal use, that income would not be taxable under the Corporate Tax Law.
It is crucial for natural persons engaged in business activities in the UAE to carefully evaluate their income sources and determine whether they meet the threshold for corporate tax liability.
Maintaining accurate records and seeking professional guidance from tax consultants or accountants can help ensure compliance with the new tax regime.
In summary, natural persons, or individuals, conducting business or business activities in the UAE will be subject to corporate tax if their annual turnover exceeds AED 1 million.
However, income from employment, personal investments, and real estate investments held for personal use are exempt from corporate tax for natural persons.
The Corporate Tax Law aims to ensure a fair and transparent tax system, and understanding its provisions is essential for individual taxpayers engaged in business activities in the UAE.
If you need further information, get in touch for free advice.
