Corporate Taxation on Natural Persons/Individuals in the UAE

There is a common misconception about corporate tax in the UAE that individuals are, in all instances, not subject to any corporate taxes. However, Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses also applies to natural persons (i.e., individuals) when they conduct business or business activities.
This article addresses the applicability of corporate tax to natural persons and outlines the compliance requirements for such individuals.
 

Taxable Natural Persons under UAE Corporate Tax

According to the Federal Tax Authority (FTA), a natural person is any living human being of any age, whether resident in the UAE or elsewhere (non-resident). A natural person becomes a taxable person if their total turnover exceeds AED 1 million in a Gregorian calendar year (1 January to 31 December) under the following circumstances:

1. Resident Person conducting business or business activities in the UAE.
2. Non-Resident Person with a Permanent Establishment (PE) in the UAE, as defined in Article 14 of the Corporate Tax Law.
3. Non-Resident Person deriving state-sourced income accrued in or derived from activities performed, assets located, capital invested, rights used, or services performed or benefited from in the UAE.

 

How to Calculate Total Turnover for a Taxable Natural Person

The total turnover of natural persons during a Gregorian calendar year includes income from all business categories or activities conducted, except exempt income such as wages, personal investments, and real estate investment income.
For instance:

• Income from a sole proprietorship or a fiscally transparent unincorporated partnership should be aggregated.
• Income from wages, personal investments, or real estate investments is excluded when determining turnover.

Accounting Method:

Turnover should be calculated on an accrual basis of accounting unless the natural person uses the cash basis of accounting.
 

Exempt Income for Natural Persons

1. Wage Income: Wages, including compensation or benefits (cash or in-kind) received from an employer, are not subject to corporate tax.
2. Personal Investment Income: Income derived personally, not requiring a license or considered a commercial business under the Commercial Transactions Law, is exempt.
3. Real Estate Investment Income: Income from selling, leasing, sub-leasing, or renting real estate in the UAE is exempt if not conducted through a licensed activity.

 

Deadlines for Registration

Natural persons must register for corporate tax if their gross turnover from business activities exceeds AED 1 million in a calendar year.

Category	Deadline for Registration
Resident persons exceeding AED 1 million turnover in a Gregorian year	31 March of the subsequent year.
Non-resident persons meeting taxable requirements	Three months from the qualifying date.

 

Corporate Tax Calculation

Once turnover exceeds AED 1 million:

• Taxable Income is subject to:
  • 0% on the portion ≤ AED 375,000.
  • 9% on the portion > AED 375,000.

Deductions:

1. Interest Deduction: Fully deductible for business purposes without limitations.
2. General Deduction Rules: Expenses must be exclusively for business purposes, not linked to exempt income, and must arise directly from the business.
3. Salary Deduction: Sole proprietors cannot deduct their own salaries.

Example:

• Mr. Ahmed, a UAE resident:
  • Employment Income: AED 200,000 (exempt).
  • Freelance Turnover: AED 1,500,000 (AED 400,000 expenses).
  • Real Estate Rental Income: AED 500,000 (exempt).
  • Gross Turnover: AED 1,500,000.
  • Taxable Income: AED 1,100,000 (AED 1,500,000 – AED 400,000).
  • Tax Payable:
    • AED 375,000 @ 0% = AED 0.
    • AED 725,000 @ 9% = AED 65,250.
• Outcome: Mr. Ahmed registers for Corporate Tax, files returns, and pays AED 65,250 or Taxable person can opt for Small Business Relief as turnover is less than 3 Million subject to fulfill of conditions.

 

Preparation of Books of Accounts

Natural persons with taxable business income must maintain accurate financial records in compliance with International Financial Reporting Standards (IFRS) or IFRS for SMEs, depending on their turnover:

• Turnover ≤ AED 50 million: Simplified SME standards.
• Turnover > AED 50 million: Audited financial statements.

 

Corporate Tax Return Filling
 

Must file a Corporate Tax Return within 9 months from the end of the relevant Tax Period.
 

Key Takeaway:

1. Natural person has sole proprietorship, partner in unincorporated partnership firm and family foundation need to check for Gross Turnover limit and register for the CT Registration before 31^st March 2025.
2. Consultant, content creator and athletes may be required to liable for corporate tax in individual capacity if cross threshold of AED 1 million turnover.
3. Wages, Personal Investment income and real estate investment income is excluded for the corporate tax subject to condition.
4. Non- Resident individual also liable to pay corporate tax in UAE-on-UAE sourced income.
5. Business expenditure and interest without limit is deductible while calculating corporate tax.
6. Salary paid to own is not deductible while calculating Natural Person Taxable Income.
7. Small Business Relief is applicable for the Natural Person.

 
By staying updated on the evolving Corporate Tax regulations in the UAE, businesses can avoid penalties and ensure compliance. If you need assistance with filing your CT Registration, CT Implementation and CT return, Contact us for guidance.