Non-resident individuals may be liable for corporate tax if they establish a permanent presence in the UAE, surpassing a total turnover of Dh 1 million within a calendar year starting in 2024, as outlined in the guide.
Nevertheless, specific income streams such as employment earnings, personal investments, and real estate gains remain consistently exempt from corporate tax for individuals, according to the Federal Tax Authority (FTA).
The UAE has implemented a federal corporate tax, featuring a standard statutory rate of 9 percent, effective from the financial year commencing on or after June 1.
Globally, corporate tax rates have seen a decline over the past four decades, with the average worldwide rate dropping from over 40 percent to a range of 25 to 30 percent, reports the Tax Foundation in Washington.
The FTA underscores the significance of consulting the new guide to grasp the definitions related to individuals subject to corporate tax, providing practical examples on how the law applies to residents and non-residents conducting business in the UAE.
The authority urges them to “acquaint themselves with the corporate tax law, implementing decisions, and other pertinent materials accessible on the FTA’s website.”
Broadly, Corporate Tax applies to the following “Taxable Persons”:
●UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE;
●Natural persons (individuals) who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course; and
●Non-resident juridical persons (foreign legal entities) that have a Permanent Establishment in the UAE (which is explained under Section 8).
Juridical persons established in a UAE Free Zone are also within the scope of Corporate Tax as “Taxable Persons” and will need to comply with the requirements set out in the Corporate Tax Law. However, a Free Zone Person that meets the conditions to be considered a Qualifying Free Zone Person can benefit from a Corporate Tax rate of 0% on their Qualifying Income (the conditions are included in Section 14).
Non-resident persons that do not have a Permanent Establishment in the UAE or that earn UAE sourced income that is not related to their Permanent Establishment may be subject to Withholding Tax (at the rate of 0%). Withholding tax is a form of Corporate Tax collected at source by the payer on behalf of the recipient of the income. Withholding taxes exist in many tax systems and typically apply to the cross-border payment of dividends, interest, royalties and other types of income.
The following considerations are key when determining whether a natural person will be subject to Corporate Tax:
A natural person who conducts a Business or Business Activity in the UAE is considered to be a Taxable Person, and a Resident Person as defined in the Corporate Tax Law.
A natural person is subject to Corporate Tax on their Business or Business Activity only where the total Turnover derived from Business or Business Activities conducted in the UAE exceeds AED 1 million within a Gregorian calendar year.
For a natural person, income from the following categories is not considered as arising from a Business or Business Activity, and is disregarded when determining Turnover and not subject to Corporate Tax, regardless of the amount of:
o Wage,
o Personal Investment income, and
o Real Estate Investment income.
Where the Turnover from Business or Business Activities conducted in the UAE exceeds AED 1 million within a Gregorian calendar year, the natural person (whether resident or non-resident) is required to comply with the obligations of the Corporate Tax Law, including registration for Corporate Tax purposes with the FTA, submitting Corporate Tax Returns and paying Corporate Tax.
Since the inception of the corporate tax this year, UAE officials have continuously issued new decisions and guides. Last month, the Ministry of Finance announced fresh corporate tax decisions for companies operating in free zones.
Read More: UAE Corporate Tax: Frequently Asked Questions
Under the regulations, companies in free zones can enjoy a zero percent tax rate on income from specific qualifying activities and transactions. Additionally, they are eligible for a tax exemption on income derived from transactions with mainland UAE businesses or those in foreign jurisdictions.
In June, the ministry outlined penalties for corporate tax infringements, including failures to file and pay corporate tax on time, report changes to the FTA that require amendments to tax records, maintain proper records, or submit the necessary records and information specified in the corporate tax law.
Read Also: UAE to Implement Corporate Tax from 1st June: All You Need to Know
Younis Haji Al Khoori, undersecretary at the Ministry of Finance, emphasized the importance of adhering to corporate tax compliance, considering it a responsibility of all taxable persons to uphold the UAE’s corporate tax system in line with the highest global standards.
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