The UAE Federal Tax Authority recently published a Basic Tax Information Bulletin, tailored for natural persons. The bulletin equips Taxable Persons with detailed knowledge to help them fulfill their tax obligations efficiently.
Thus, businesses are advised to seek the expert services of top Tax Consultants in the UAE to effectively ensure corporate tax compliance.
Under What Criteria Are Natural Persons Liable to Pay UAE Corporate Tax?
Natural persons are considered taxable under Corporate Tax Law if they:
- Invest in the UAE through conducting a business or a business activity.
- Hold a fixed place of business.
- Source revenue from the state (revenue earnings in UAE or income earned or obtained therefrom).
Natural persons can only be subjected to Corporate Tax for their business operations if, during the Gregorian calendar year, their total turnover is equal to or exceeds AED 1 million starting from 01.01.2024. They do not register or pay Corporate Tax on their business income provided that the said turnover does not exceed AED 1 million. Wage, investment income, and rental income are not part of AED 1,000,000 included in corporate tax turnover.
Also read: Federal Tax Authority to Refund Fees for Private Clarification Requests
What Kinds of Revenues of Natural Persons Are Taxable by Corporate Tax?
Corporate Tax applies only to the income resulting from a business or a business activity carried out in the UAE by a natural person and they form part of the said turnover threshold. The following income types are exempt: The following income types are exempt:
- Wages: Wages paid to employees directly or indirectly according to the employment contracts in cash or in-kind.
- Personal Investment Income: Dividends received by the owners, In-trust, and gains or losses from the process of buying and selling investments undertaken directly by the owner and do not need a business license.
- Real Estate Investment Income: Sale of property, leasing, sub-leasing, and renting of property in the UAE without requiring having a business license.
What Is the Rate of Corporate Tax in the UAE for Natural Persons?
Natural persons in the UAE with business activities generating over AED 1 million in turnover during a Gregorian calendar year are liable for Corporate Tax. The tax is calculated as:
- A 0% rate on residual income up to AED 375,000.
- 4% for income more than AED 375,000 and 9% for the remaining income.
How to Determine the Natural Persons Tax Period?
The Tax Period for natural persons coincides with the calendar year starting on January 1st till December 31st. The first possible Tax Period in the Natural Persons category may be the year 2024 according to the Gregorian calendar.
What Are the Criteria for Registration of Natural Persons Under Corporate Tax, UAE?
Natural persons have to be registered for Corporate Tax if their total turnover of business activities exceeds AED 1 million each year in the Gregorian calendar starting from the 1st of January in the year 2024.
For instance, a person who has 1.1 million AED in turnover on July 25, 2024, has to register by March 31, 2025, and file a Corporate Tax return by September 30, 2025. If the maintenance is not registered on time, they are fined an amount of AED 10,000.
What Happens When Turnover Is Less Than AED 1 Million?
The policy should not be deregistered in case its turnover is below AED 1 million in the subsequent year if it is a registered natural person and the business activities are continued. They need to keep their Tax Registration Number and the ‘nil’ tax return filed by the following September 30 of the year.
Under What Circumstances Does a Natural Person Choose Deregistration From Corporate Tax in UAE?
As a rule, the deregistration should occur when a natural person no longer has active business or performs business activities. They have to lodge a deregistration application with the free trade area within three months of the cessation.
A natural person uses a single Tax Registration Number for all business or activity and should only apply for deregistration when all activities have come to an end.
What Are the Requirements for Financial Statements?
Companies in the case of natural persons, have to primarily adhere to the Accrual Basis of accounting but they can use the Cash Basis if their turnover is up to AED 3 million. The predicted financial statements should be prepared according to IFRS or IFRS for SMEs should the turnover be less than AED 50 million.
Audited financial statements need to be provided in cases when the turnover is higher than AED 50 million. The tax records are mandatory to maintain for seven years from the conclusion of the tax period.
How Time Limitation Is Determined for Tax Return Filing?
Natural persons who acquired from the state the quality of an enterprise must submit to the FTA the Corporate Tax Return no later than nine months from the end of the respective tax period. They should produce and file only one tax return for the manifestation of all those operations carrying Corporate Tax.
The publication of the Basic Tax Information Bulletin by the Federal Tax Authority is an important update for natural persons having UAE trading/business activities. Its main purpose is to educate such people on the current corporate tax laws for full compliance with the requisite tax laws.
The bulletin answers the question of who is required to pay corporate tax, what kind of income is considered taxable, and how one is supposed to register for the payment if business turnovers exceed AED 1 million.
Moreover, it provides advice on tax rates, filing dates, and such circumstances wherein one is likely to apply for the Deregistration.
Conclusively, this bulletin is essential for natural persons to have sufficient knowledge regarding the framework of the UAE’s corporate tax.
