Taxation of Natural Person under the UAE Corporate Tax Law
Taxation of Natural Person under the UAE Corporate Tax Law
A “Natural Person” is any anyone, regardless of age, who resides in the United Arab Emirates. The legal representative of a juvenile or an incapable person fulfills their corporate tax duties.
Natural persons are subject to the UAE Corporate Tax Law to the extent that they have a Permanent Establishment in the United Arab Emirates, conduct business or business activities there, or receive State Sourced revenue (i.e., revenue that is accrued in or derived from the UAE).
If a natural person’s annual turnover from a “business” or “business activity” in the United Arab Emirates exceeds AED 1 million, they will be liable to UAE Corporate Tax. For natural persons, certain types of income—such as employment, real estate, and personal investment income—are excluded from corporate tax.
Natural persons: Resident and Non-Resident
A natural person is regarded as a resident person when they live in the United Arab Emirates and carry out business there.
If a natural person lives outside of the United Arab Emirates and maintains a place of business or engages in business activities there, they are considered residents for corporate tax purposes.
Note: According to Article 11(4) of the Corporate Tax Law, a non-resident person who resides in a nation with an applicable double taxation agreement with the United Arab Emirates and whose turnover exceeds AED 1 million becomes taxable in the UAE due to the application of that double taxation agreement, even though the person is not resident in the UAE.
Example 1: A regular person in the United Arab Emirates for a client meeting Mrs. Z, a natural person working for a foreign corporation with headquarters outside of the United Arab Emirates, comes to the country for five days to meet with customers, showcase new products, and tour manufacturing sites. As an employee, Mrs. Z is present in the United Arab Emirates. Mrs. Z is not regarded as a Resident Person under the Corporate Tax Law because she is not carrying out a Business or Business Activity in the UAE on her own account.
Example 2: A regular person based in the United Arab Emirates Mr. X, a natural person visiting the UAE on a visitation visa, sets up a small workshop to repair vintage jewelry. Working for himself, he sells goods throughout the course of several months in a Gregorian calendar year, generating a turnover of AED 1,700,000. Since Mr. X is operating a business or business activity in the United Arab Emirates on his own account, he is regarded as a resident person.
Since his annual turnover exceeds AED 1 million, corporate tax will apply to the business or business activity. For corporate tax purposes, Mr. X will be considered a resident person. It should be noted that compliance with immigration, work permit, and business license regulations has no bearing on a natural person’s status as a resident for corporate tax purposes.
What income is considered taxable for natural persons?
Any income received by a natural person engaged in business or business activity within the United Arab Emirates is liable to corporate tax.
However, a natural person is exempt from registering for or paying corporate tax on their income from business or business activity activities provided their total turnover from business or business activity conducted in the UAE does not exceed AED 1 million in a Gregorian calendar year. Payments made “in-kind” that are evaluated at market value may be included in the turnover.
What is a Business and a Business Activity
Any transaction, activity, or sequence of transactions or activities carried out by a Person in the course of its Business is included in the very broad definition of Business Activity.
Any action carried out consistently, independently, and on a regular basis is referred to as business. Examples of activities that make up a business are given by the definition, which includes “industrial, commercial, agricultural, vocational, professional, service or excavation activities.” According to the definition, a business also includes any other activity involving the utilization of tangible or intangible assets.
Business or Business Activities that are subject to Corporate Tax
A natural person’s taxable income will include income from both inside and outside the UAE, but only to the extent that it is related to the business or business activities the person is conducting in the UAE, if they are deemed Resident Persons and their total Turnover from business or business activities conducted in the UAE exceeds AED 1 million.
The following factors must be taken into account in order to determine if the income is connected to the business or business activity carried out in the United Arab Emirates: –
- Whether the individuals involved in the production or sale of the goods or services are employed in the UAE, reside there, or are managed there,
- Whether business development or contracting linked to selling the goods or offering the services was carried out from the United Arab Emirates, or
- Is it true that the assets used to produce the goods or provide the services are based in the United Arab Emirates?
Corporate Tax Rate for Natural Persons
If a natural person’s Turnover in a Gregorian calendar year is more than AED 1 million, corporate tax will be applied to their Taxable Income at the following rates:
- 0% on the amount of the taxable income that doesn’t surpass AED 375,000.
- 9% is applied to the amount of Taxable Income that above AED 375,000.