UAE Corporate Tax Guide: Key Insights for Individuals
The United Arab Emirates (UAE) introduced Corporate Tax (CT) in June 2023. While primarily targeting corporate entities, the law also encompasses natural persons conducting business activities within the country. In this blog, let us look into the key aspects of UAE Corporate Tax for common people.
When Does UAE Corporate Tax Apply to Natural Persons?
Natural persons (Individuals) are subject to corporate tax and considered as taxable persons if
- They are conducting business or business activities in the UAE or
- They have permanent establishment in UAE or
- They derive or earn income sourced from within the country, i.e income that is accrued in, or derived from, the UAE.
Common individuals with annual turnover not exceeding AED 1 million in the Gregorian calendar year are not required to register for or pay Corporate Tax. This exemption applies to turnover generated from business activities conducted within the UAE and applies to tax years starting from 1 January 2024.
Which Incomes of Natural Persons Are Subject to Corporate Tax?
A natural person is subject to Corporate Tax on income from a business and business activity conducted in the UAE. Certain income types are not subject to Corporate Tax in the hands of natural persons and excluded from the turnover threshold:
- Wages: Income from employment contracts, including salaries, bonuses, and in-kind benefits.
- Personal Investment Income: Dividends, interest, and investment gains or losses, provided the investment activity is not conducted through a license or is not required to be conducted through a license or considered a commercial business.
- Real Estate Investment Income: Income from selling, leasing, or renting real estate, provided the activity is not conducted through a license or is not required to be conducted through a license.
What is the tax rate applicable for Natural Persons?
Common citizens in the UAE conducting business with an annual turnover exceeding AED 1 million are subject to corporate tax. The first AED 375,000 of taxable income is exempt from tax, while any income exceeding AED 375,000 is taxed at a rate of 9%.
Tax period in case of Natural Persons:
The tax year for individuals aligns with the Gregorian calendar, running from January 1st to December 31st each year. Therefore, the first tax period for individuals commences on January 1st, 2024, and concludes on December 31st of the same year.
Registration requirement for Natural Persons
- Common persons conducting business in the UAE must register for Corporate Tax if their annual turnover exceeds AED 1 million within a Gregorian calendar year that begins on or after 1 January 2024.
- This registration is due by March 31st of the following year. For instance, if a person’s turnover surpasses AED 1 million on June 15th, 2024, they must register by March 31st, 2025.
- The corporate tax return should be filed by such individuals within 30th Sept 2025.
- Failure to register on time results in a AED 10,000 penalty.
Time limit to file the returns:
Natural persons engaged in business activities that are subject to corporate tax must file a single corporate tax return with the FTA. This return covers all their businesses and business activities and is due within nine months from the end of the relevant tax period.
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Impact of reduction in turnover below AED 1 million in subsequent year. Are they allowed to De-register?
- A natural person registered for Corporate Tax must maintain their registration even if their annual turnover falls below AED 1 million.
- Deregistration is only permitted if the individual completely stops conducting business and business activities in the UAE.
- The Tax Registration Number must be kept active regardless of turnover.
- If turnover remains below AED 1 million, a ‘nil’ tax return must be filed by September 30th of the following year.
Impact of reduction in turnover below AED 1 million in subsequent year. Are they allowed to De-register?
- A natural person registered for Corporate Tax must maintain their registration even if their annual turnover falls below AED 1 million.
- Deregistration is only permitted if the individual completely stops conducting business and business activities in the UAE.
- The Tax Registration Number must be kept active regardless of turnover.
- If turnover remains below AED 1 million, a ‘nil’ tax return must be filed by September 30th of the following year.
De-registration
- A natural person registered for Corporate Tax must file a deregistration application with the FTA.
- This application is mandatory if the person’s business or business activity ceases.
- Cessation can occur due to dissolution, liquidation, or other reasons.
- The deregistration application must be submitted within 3 months of the business or business activity’s termination date.
- A natural person has only one Tax Registration Number for all their businesses or business activities.
- Deregistration is only possible when all business activities have ceased.
Maintenance of books of accounts & preparation of Financial statements
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Accounting Basis
- General Rule :Natural persons must use the Accrual Basis of Accounting.
- Exception: :If turnover is AED 3 million or less, Cash Basis of Accounting can be used.
Approval from the FTA is required for exceptions beyond the AED 3 million limit.
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Financial Statements
- Financial Statements must follow International Financial Reporting Standards (IFRS).
- If turnover is AED 50 million or less, IFRS for SMEs can be applied.
- Financial Statements must include all business activities subject to Corporate Tax.
- For turnovers exceeding AED 50 million, audited Financial Statements are mandatory.
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Record Keeping
- All records and documents must be kept for 7 years from the end of the Tax Period, to which they relate.
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Bottomline:
Understanding UAE corporate tax as a common person can be challenging. To ensure accurate tax compliance and potential tax savings, consider reaching out to BCL Globiz. Our expertise can provide you with the necessary clarity and support.
Also take a glance on – Essential Documents Required for Corporate Tax Registration in UAE
