The Federal Tax Authority (FTA) has recently released a Basic Tax Information Bulletin that provides corporate tax-related guidelines for natural persons in the UAE. The bulletin is designed to make the tax system more understandable and answer frequently asked questions regarding tax obligations, helping taxable individuals navigate the UAE’s corporate tax system seamlessly.
Who are Natural Persons?
According to the Corporate Tax Law, a natural person refers to an individual rather than a corporate entity or business and is taxable if meeting a certain criterion, this includes:
- The individual is conducting a business or business activity in UAE, or
- Has a permanent establishment for conducting business activities i.e., a workshop or an office, or
- Derives state-sourced income (income that is earned or generated within UAE).
Application of corporate tax to natural persons in UAE
The basic tax information bulletin also specifies the amount of total revenue generated through business activities that makes a natural person eligible for corporate taxation. The natural person has to register for corporate tax only if the total income generated through the business activities exceeds AED 1 million within a Gregorian calendar year (January 1 to December 31, of that year).
Only the income generated through business activities is liable to corporate tax application and is included in the calculation of total turnover. The bulletin also mentions natural person’s sources of income that are exempted from corporate taxation. Those categories of income are mentioned below:
- Wage: The salary that is received by the natural person from his/her employer as compensation for the services provided is not subject to corporate tax.
- Personal investment income: Income from dividends (profits received from shares in a company), interest (income from savings or investments) and gains or losses incurred from sale of personal investments is not subject to corporate tax. The investment activity must be done privately and not as part of a business for it to be exempted from corporate tax. Moreover, the activity should not require a license from licensing authority and should not qualify as commercial business under the UAE’s Commercial Transactions Law.
Real estate investment income: The income earned by a natural person from an investment activity related to the selling, leasing, or renting of a real estate property in the UAE, is also exempted from the application of corporate tax. Furthermore, the investment activity must not be conducted through a license issued by a licensing authority in the UAE.
Corporate tax rate and tax period for natural persons
If a natural person generates an annual income exceeding AED 1 million through his/her business activities, the taxable income of natural person will be subject to corporate tax at the following rates:
- 0% on the portion of taxable income not exceeding AED 375,000.
- 9% on the portion of taxable income exceeding AED 375,000.
The basic tax information bulletin also provides information about the allocated time period for corporate tax registration and filing of tax returns through an example. For instance, a natural person is conducting business within UAE during the 2024 Gregorian calendar year, and his/her turnover during 2024 exceeds AED 1 million. Now, this person is obligated to register for corporate tax by 31 March 2025 and file his corporate tax return by 30 September 2025.
A natural person who is registered as a corporate taxpayer with the FTA, generates an annual turnover of less than AED 1 million during any subsequent Gregorian calendar year is required to retain his/her tax registration number and file a ‘nil’ tax return up to 30th September of the next year. The natural person should not deregister for corporate tax unless they have finished their business activities.
The bulletin also mentions that a natural person who is taxable under the corporate tax law must file a corporate tax return with the Federal Tax Authority within 9 months from the end of the relevant tax period. Moreover, natural persons are required to submit a single tax return for all their business activities.
Penalty for late registration application
Natural persons eligible for corporate tax who fail to submit the tax registration application within the allocated time frame shall incur an administrative penalty of AED 10,000.
Seek the Expert Services of Top Tax Consultants in UAE
In conclusion, it is essential for natural persons to fully comprehend corporate tax latest updates to effectively ensure compliance with the corporate tax law. Thus, it is advisable for businesses to seek the expert services of top Tax Consultants in UAE. Therefore, contact us today and we shall be glad to assist you.
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