Corporate Tax For Individuals
1. Residency Matters:
To determine tax residency for individuals, the UAE takes into account the following criteria:
• If your primary place of residence and the center of your financial and personal interests are in the UAE.
• If you've spent 183 days or more in the UAE within a 12-month period.
• If you've been present in the UAE for at least 90 days within a 12-month period and fall into certain categories, including having a Permanent Place of Residence in the UAE or being engaged in employment or business activities.
2. Defining Business Activity:
Under Corporate Tax Laws, Business is defined as any economic activity, whether continuous or for a set period of time, conducted by any Person. The definition includes any industrial, commercial, agricultural, vocational, professional or service activity, excavation activity and any other activity of an independent character related to the use of tangible and intangible properties.
This encompasses a wide range of activities, from industrial and commercial endeavors to professional services and more.
3. Basic Exemption Threshold:
Individuals engaged in business activities will only be subject to corporate tax if the total turnover from those activities exceeds AED 1,000,000 within a Gregorian calendar year. So, if your combined turnover doesn't reach this threshold, you're not obligated to register and pay corporate tax.
4. Financial Year and Reporting:
For individuals conducting business in the UAE, the financial year aligns with the Gregorian calendar year, running from January to December. Corporate tax implementation in the UAE starts with the first financial year that commences on or after June 1, 2023. This means that the initial tax period for individuals will be from January 1, 2024, to December 31, 2024, with the first return due by September 30, 2025.
5. Exempted Income:
Corporate tax exemptions in the UAE apply to specific income sources, irrespective of the income amount. These include:
• Wages: This covers employee compensation, including allowances, bonuses, and additional benefits specified in the employment contract.
• Personal Investment Income: Income generated from personal investments that don't require a license from a UAE Licensing Authority or constitute a commercial business.
• Real Estate Investment Income: Any income from activities related to land or real estate property in the UAE, not requiring a license from a Licensing Authority.
6. Sole Establishment and Unincorporated Partnerships:
In the UAE, sole establishments are a common business ownership type where the individual is directly linked to the business and holds full responsibility for its debts and obligations.
Where a partnership is not incorporated in the UAE and does not have a separate legal personality, each partner is treated as conducting the Business of the partnership and each partner is taxed in proportion to their distributive share in the partnership.
In both cases, the liability to register and pay Corporate Tax is on the individual in his individual capacity. Additionally, the turnover from all establishment licenses owned by an individual, along with their share of turnover from unincorporated partnerships, is combined to determine the AED 1 million basic exemption limit.
It is important to note that if an individual is having a sole establishment license, but is operated and managed by another person under a Power of Attorney or similar arrangement, the liability as per Corporate Tax rules is still on the owner of the establishment in his personal capacity.
Get in Touch:
Navigating the world of corporate tax in the UAE as an individual doesn't have to be daunting. By understanding these key points, you can ensure that you're compliant with the new regulations while making the most of tax exemptions where applicable.
If you have any questions or uncertainties about the tax implications for your business, feel free to reach out to us at finance@hicuae.com. We're here to provide the support and guidance you need.
