Effective June 1, 2023, the Ministry of Finance (MoF) introduced a new federal corporate tax system, necessitating that all businesses in Dubai reassess their tax strategies. If you are facing challenges with these tax changes and seeking the best corporate tax services in Dubai, consider GLEEFINITY corporate tax advisors. As the leading corporate tax advisory in the UAE, we serve businesses of all sizes, dedicated to guiding you through the complexities of corporate taxation.

Leading Corporate Tax Consultants in Dubai

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• Staying compliant with the UAE’s evolving tax environment

• Optimizing your tax strategy to achieve maximum savings

• Providing customized corporate tax consultancy services tailored to your business requirements

Understanding Corporate Tax in the UAE

Corporate tax is a federal income tax imposed on businesses with an annual income exceeding AED 375,000. The regulations governing corporate tax in both mainland and free zones in the UAE are somewhat complex. Even if a business is not required to pay corporate taxes, it must still register for corporate tax in the UAE and file returns under certain conditions. Expert guidance is essential to navigate the challenges of federal corporate tax in Dubai. Here is a comprehensive overview of the key information you need to know about corporate tax in the UAE.

Introduction

Federal Decree-Law No. 47 of 2022, concerning the Taxation of Corporations and Businesses, was enacted on October 3, 2022, and published in Issue #737 of the Official Gazette of the United Arab Emirates (UAE) on October 10, 2022. This law establishes the legislative framework for levying a federal tax on corporate and business profits in the UAE. The provisions will be effective for tax periods beginning on or after June 1, 2023. The Corporate Tax Law applies to individuals operating a business, maintaining a Permanent Establishment in the UAE, or deriving income directly from the UAE. However, certain types of individual income, such as employment income, personal investment income, and real estate investment income, are exempt from Corporate Tax. It is crucial to recognize that international agreements, including Double Taxation Agreements, take precedence over the Corporate Tax Law in cases of conflict. Therefore, when assessing the tax implications for an individual, it is essential to consider the terms of any applicable agreements between the UAE and other countries.

Natural Person

The term “natural person” is understood in its ordinary sense, referring to any living human being of any age, regardless of whether they reside in the UAE or elsewhere. For minors or incapacitated individuals, Corporate Tax obligations must be fulfilled by their Legal Representative.

Corporate Tax Law and natural persons

In order to level the playing field between incorporated businesses and unincorporated businesses conducted by individuals, the Corporate Tax 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 (i.e. income that is accrued in, or derived from, the UAE).

However, certain types of income are always exempt from Corporate Tax for natural persons. For a natural person, the Corporate Tax Law does not apply to their

• Employment income,

• Personal Investment income,

• Real Estate Investment income.

International agreements, including Double Taxation Agreements, prevail where there is an inconsistency between the provisions of the Corporate Tax Law and the agreement. Therefore, the position under applicable Double Taxation Agreements between the UAE and other jurisdictions should be considered in determining the residence and extent of UAE Corporate Tax for a natural person

Key Considerations

The following considerations are key when determining whether a natural person will be subject to Corporate Tax

1) A natural person who conducts a Business or Business Activity in the UAE is considered to be a Taxable Person, and a Resident Person 2) A natural person is subject to Corporate Tax on their Business or Business Activity only where the total Turnover derived from Business or Business Activities conducted in the UAE exceeds AED 1 million within a Gregorian calendar year 3) For a natural person, income from the following categories is not considered as arising from a Business or Business Activity, and is disregarded when determining Turnover and not subject to Corporate Tax, regardless of the amount

• Wage,

• Personal Investment income

• Real Estate Investment income

Where the Turnover from Business or Business Activities conducted in the UAE exceeds AED 1 million within a Gregorian calendar year, the natural person (whether resident or non-resident) is required to comply with the obligations of the Corporate Tax Law, including registration for Corporate Tax purposes with the FTA, submitting Corporate Tax Returns and paying Corporate Tax.

Exclusions from Corporate Tax

Income generated from specific activities, including wages, personal investment income, and real estate investment income, is exempt from Corporate Tax. This exemption is due to these sources not being classified as Business or Business Activities under the Corporate Tax Law.

Additionally, this income is not included in the calculation to assess whether an individual has surpassed a turnover of AED 1 million in a Gregorian calendar year from business or business activities conducted in the United Arab Emirates.

Corporate Tax rate for natural persons

The rates below apply to the total Taxable Income of a natural person, which is the Taxable Income derived from all businesses or business activities conducted in the UAE by that individual, rather than the Taxable Income of each business or activity separately.

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

Small Business Relief

A natural person may opt for Small Business Relief under Article 21 of the Corporate Tax Law, provided that the necessary conditions are met. Specifically, the revenue from the taxable business or business activity of the natural person during the relevant tax period and previous tax periods must not exceed AED 3 million for each tax period.

Note that the Small Business Relief is based on Revenue, where Revenue is defined as the gross amount of income derived during a Tax period. A natural person’s Tax Period is the Gregorian calendar year.

Thus, a natural person’s Revenue will be the same as Turnover, being the gross amount of income derived during a Gregorian calendar year.

Tax Registration

Natural persons conducting Businesses or Business Activities in the UAE that are subject to Corporate Tax are only required to register for Corporate Tax purposes once the total Turnover derived from such Businesses or Business Activities exceeds AED 1 million within a Gregorian calendar year.

In case a natural person is a partner in an Unincorporated Partnership that is not treated as a Taxable Person in its own right, they are treated as conducting the Business of the Unincorporated Partnership.

If following their initial Tax Registration, a natural person conducts new Business or Business Activities, the same Tax Registration Number will be utilised for such Business or Business Activities.

In this case, the natural person is required to include the Taxable Income and the relevant information of the new Business or Business Activities in their Tax Return under the same Tax Registration Number

When a natural person who has registered for Corporate Tax with the FTA finds their Turnover not exceeding the AED 1 million threshold during any subsequent Gregorian calendar year, they will retain their Tax Registration status.

They are not permitted to deregister for Corporate Tax unless they have ceased conducting Business or Business.

Get in touch

The experts at GLEEFINITY are highly experienced professionals in business setup, accounting, and taxation. They excel in delivering customized solutions to each client and are consistently available to address any inquiries you may have.

Phone

+971 55 254 5785

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