Individuals residing in the United Arab Emirates (UAE) who earn an income of Dh1 million or more must prepare for corporate tax.
Individuals situated in the UAE engaged in consultancy or other business services, generating Dh1 million or more annually, are obligated to enroll for corporate tax.
This requirement extends to social media influencers, freelance professionals, and retired individuals involved in consultancy or other work.
In a recent update, the Federal Tax Authority has provided comprehensive information on the conditions under which corporate tax registration applies to sole proprietorships, especially when their business activities lead to annual revenues surpassing Dh1 million.
For example, if an individual working as a self-employed consultant generates a net income surpassing Dh1 million, that income falls within the scope of ‘business or business activity’ conducted by a resident (referred to as a ‘natural person’).
The Federal Tax Authority (FTA) clarified in its guidebook that there is no exemption for profits related to the initial Dh1 million of turnover. However, the individual is eligible for a 0 percent rate on the first Dh375,000 of taxable income.
Under the UAE corporate tax regulations, the 9 percent rate applies to businesses that exceed Dh375,000 in profit over a year.
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The individual is required to register for corporate tax and acquire a Tax Registration Number if the total turnover exceeds Dh1 million within a Gregorian calendar year starting from 2024.
In such cases, these individuals may explore the option of applying for the ‘Small Business Relief’ package introduced by the UAE tax authorities earlier. To qualify, the business must not exceed Dh3 million in total revenue for the year, and it should not have reached that revenue milestone in the preceding tax period as well.
The tax authority has consistently clarified that income from wages, real estate investments, or personal investments by an individual will not be subject to corporate tax.
“If a natural person’s total turnover from business or business activities conducted in the UAE does not surpass Dh1 million within a Gregorian calendar year, there is no obligation to register for or pay corporate tax on their income,” states the Federal Tax Authority (FTA).
“The turnover may encompass ‘in-kind’ payments valued at market value.” This means that if an influencer receives a complimentary stay at a luxury hotel instead of direct payment, it will still be considered part of the turnover for the year.
“The UAE corporate tax law treats sole proprietorship and the ‘natural person’ as synonymous due to the direct relationship and control over the business. This is also due to their ‘unlimited’ liability for the debts and other obligations of the business.”
Simultaneously, the UAE corporate tax law treats each partner in an ‘unincorporated partnership’ as an individual taxable person.
“However, partners can formally request the FTA to treat the ‘unincorporated partnership’ as a ‘taxable person.’ If the FTA approves the application, the income will be taxed at the level of the unincorporated partnership rather than at the level of the individual partners.”
Rental Income or Gain from Selling Property:
As long as such activities are not conducted through a license from a local licensing authority, the income generated will not be subject to corporate tax.
“Real estate investment income is exempt from corporate tax for natural persons when it is related, directly or indirectly, to the selling, leasing, sub-leasing, and renting of land or real estate property in the UAE,” states the Federal Tax Authority (FTA).
Based in the UAE – and with Income from the Gulf
The Federal Tax Authority outlines various scenarios in which an individual can generate income and how it would be subject to taxation. An illustrative example is presented, featuring a renowned physiotherapist whose primary center of activity is in the UAE, with additional interests in other Gulf countries.
Calculation of Turnover and Business Activities
“When calculating the turnover, both income derived from the UAE and from other Gulf countries (excluding wages) should be included, as they pertain to business or business activities conducted in the UAE,” emphasizes the Federal Tax Authority (FTA).
This is especially relevant in cases where the individual receives requests for treatment sessions from therapy centers in various Gulf countries due to their work in the UAE and reputation for providing high-quality services.
Earning a Wage and Running a Separate Business
Recent reforms in the UAE offer more flexibility for individuals who are employed but wish to engage in freelancing or establish a separate business while retaining their day job. In such cases, only income generated from their own business or consultancy services falls under the corporate tax bracket, and that too, only if the annual total exceeds Dh1 million. Wages earned by the individual will not be subject to taxation under any circumstance.
Another scenario outlined in the FTA guidebook involves a sole proprietor registered with the FTA after meeting all conditions. If the individual draws an amount from the business, citing it as an annual salary cost, that sum will not qualify for tax deduction. “No deduction is allowed” as the individual and the business are considered “one and the same taxable person.”
The information provided herein is for the general information of the user and is provided in good faith. We make no representation or provide warranty of any kind, express or implied, regarding the adequacy, suitability, validity, or completeness of the information. Our advice in regard to UAE corporate tax and value added tax is based on our understanding of the relevant laws and the regulations issued. We cannot be held responsible for new regulations and/or interpretation of existing regulations by the FTA that is not consistent with our advice. Under no circumstance shall we have any liability to any user of this information or to third parties for any loss or damage of any kind incurred as a result of the use or reliance of this information.