Understanding the UAE’s Corporate Tax Law: A Guide for High Net Worth Individuals

The Corporate Tax Law applies to natural persons, including HNWIs, to the extent they conduct a business or business activity in the UAE. This includes individuals who operate unincorporated businesses, have a permanent establishment in the UAE, or derive UAE-sourced income. Certain types of income are exempt from corporate tax, including employment income, personal investment income, and real estate investment income.

HNWIs often have diverse income streams and substantial financial activities. A natural person becomes subject to corporate tax in the UAE if their business activities generate a turnover exceeding AED1 million within a Gregorian calendar year. Turnover, in this context, refers to the gross income derived from all business activities before any deductions.

The taxable income is the accounting income after necessary adjustments per the Corporate Tax Law. The applicable tax rates are 0% on the first AED375,000 of taxable income and 9% on the portion exceeding AED375,000.

Individuals often wonder about the tax obligations of non-Emirati individuals. The citizenship or residency status of a natural person does not affect their corporate tax obligations if their annual turnover exceeds AED1 million for businesses conducted in the UAE.

The law distinguishes between resident and non-resident natural persons. A resident person is someone who conducts business or business activities in the UAE, regardless of their physical residence status. Conversely, a non-resident person may be subject to corporate tax if they have a permanent establishment in the UAE or derive UAE-sourced income.

For example, an HNWI consultant based in the UAE who travels abroad to provide services remains a resident person for tax purposes, and their foreign income related to the UAE business activities would be subject to corporate tax.

HNWIs with a turnover not exceeding AED3 million can elect for small business relief. This relief allows eligible taxable persons to be treated as having no taxable income for the relevant tax period, simplifying their tax obligations.

Certain expenditures, such as interest incurred wholly and exclusively for business purposes, are deductible. However, personal expenses or amounts withdrawn from a business by a natural person are not deductible. Related-party transactions must adhere to the arm’s length principle, ensuring that they reflect market value and are consistent with transactions between unrelated parties.

For HNWIs, strategic tax planning is essential to optimise their tax positions. This includes leveraging allowable deductions, understanding the implications of related-party transactions, and considering the impact of international tax treaties. HNWIs often have complex financial arrangements and multiple income streams, making it crucial to seek expert advice to navigate the intricacies of the Corporate Tax Law effectively.

Family foundations have long been a favoured vehicle for asset protection, succession planning, and managing family wealth. With the introduction of the UAE Corporate Tax Law, the landscape for these entities has evolved, impacting how HNWIs manage and optimise their tax liabilities.

Natural persons subject to corporate tax must comply with various obligations, including tax registration, submission of tax returns, and maintaining accurate financial records. Failure to comply can result in administrative penalties, reinforcing the importance of understanding and adhering to the Corporate Tax Law provisions.

As the UAE’s tax landscape continues to evolve, understanding the corporate tax obligations for HNWIs is crucial. By recognising who qualifies as a natural person and what income is taxable or exempt, individuals can better navigate the UAE’s corporate tax landscape. Additionally, considering family foundations can offer strategic benefits for succession planning and tax optimisation, ensuring long-term preservation and efficient management of family wealth. Strategic tax planning and expert advice will be essential tools for HNWIs to manage their tax liabilities effectively.