UAE Corporate Tax: Identifying Natural Persons
The Federal Tax Authority has published a guide that details the criteria for identifying natural persons subject to the Corporate Tax Law, effective from 1 June 2023. As Shamma Al Falahi of BSA Ahmad Bin Hezeem & Associates LLP explains, “Corporate Tax Guide: Taxation of Natural Persons under the Corporate Tax Law” is a crucial document for individuals engaging in business activities in the United Arab Emirates (UAE) as it offers detailed insights into the applicability, tax rate, calculation, and compliance requirement of corporate tax for natural persons.
Applicability of Corporate Tax Law to Natural Person
Under Federal Decree-Law No 47 of 2022, which pertains to the taxation of corporations and businesses in the UAE, a “taxable person” is defined as any individual subject to corporate tax in the UAE. This includes “natural persons conducting business or business activities in the UAE”. As defined in the guide, “natural persons” refer to any living human beings, encompassing minors and incapacitated individuals represented by legal representatives. The law applies to natural persons engaged in business or business activities in the UAE with a permanent establishment or deriving UAE-sourced income.
The guide sets out who qualifies as a natural person for tax purposes and lists the key considerations determining whether a natural person is subject to corporate tax. A key consideration is whether the total turnover from business or business activities in the UAE exceeds AED1 million within a Gregorian calendar year. It is important to note that income derived from wages, personal investment income, and real estate investment is disregarded when determining the turnover.
Corporate Tax Rate and Calculations
If a natural person’s turnover exceeds AED1 million in a Gregorian calendar year, their taxable income will be subject to corporate tax at these rates:
- 0% on the portion of the taxable income not exceeding AED375,000; or
- 9% on the portion of the taxable income that exceeds AED375,000.
The guide also details how taxable income for a natural person is calculated, covering aspects such as:
- interest deductions;
- general rules for business expenditure deductions;
- non-deductible expenditures; and
- specifics of related and connected parties.
It explains how transactions between related parties must adhere to the arm’s length principle for tax purposes.
Compliance Requirements
A natural person whose turnover exceeds AED1 million within a Gregorian calendar year is obligated to register for corporate tax. The tax period for a natural person shall be the Gregorian calendar year that runs from 1 January until 31 December. A natural person would need to assess whether they meet the criteria explained above; should they exceed the threshold by the end of the tax period, they must file a tax return no later than nine months following the end of the relevant tax period.
Corporate tax deregistration is mandated upon cessation of business or in case of the death of the taxable person. The deregistration application shall be filed within three months of the date of cessation of the business.
Lastly, a natural person may elect for small business relief under Article 21 of the Corporate Tax Law, provided their turnover in the relevant and preceding tax periods does not exceed AED3 million and all other criteria for this relief are satisfied.
BSA Ahmad Bin Hezeem & Associates
