UAE Corporate Tax: Will Payments Received Outside Of Employment Contracts Come Under Tax?

Professionals with businesses must do more than state that their annual income is below Dh1m.

While salaries and personal investment income remain exempt from UAE corporate tax, individuals managing multiple businesses should check out their ’employment contracts’.

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Entrepreneurs engaged in business activities and generating an annual turnover surpassing Dh1 million must adhere to relevant regulations. The recent tax guide elucidates the notion of wages, encompassing compensation provided to an employee for their services outlined in the labor contract, whether in cash or in kind. This encompasses allowances, bonuses, and any additional benefits.

The significance of employment contracts is evident.

Any payment made to an individual outside the confines of the employment contract appears to bear the risk of not being recognized as part of the entitled wage. The determination of salary in such situations is contingent on a case-by-case assessment.

For business owners contemplating drawing salaries from several companies, the viability of an individual operating under multiple employment contracts still lacks clarity. According to the recent FTA tax guide, director fees will not be categorized as a business or business activity, and consequently, will not be subject to corporate tax.

Personal Investment Activity:

Personal investment income excludes activities that could be classified as a business according to the Commercial Transactions Law. Among the various activities listed as commercial businesses, special attention is needed for:

  • Speculative activities undertaken by individuals, regardless of their trader status, with the aim of realizing a profit.
  • Activities related to virtual assets.

Trading in shares and securities by individuals, if deemed speculative, might necessitate compliance with corporate tax regulations. The resulting profits or losses from such activities are irrelevant. For instance, a fund corpus of Dh10,000 utilized 100 times in a trading cycle during a calendar year could easily surpass the tax registration threshold of Dh1 million in annual revenue.

Transactions involving virtual currencies, non-fungible tokens, and carbon credits require a thorough assessment of their tax implications. It is essential to scrutinize whether virtual assets encompass services related to them, such as those provided by exchange houses.

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Place of Business OR Business Activity

Income derived from business or business activities carried out in the UAE is now subject to the new tax. Additionally, income from short-term activities may be taxable if they are considered transactions or activities conducted in the course of business.

Determining the location where the business or business activity occurs can pose challenges. Factors such as the individual’s usual residence, the source of income, or the actual place of commercial activity are not decisive. The person conducting the business may be residing in the UAE or elsewhere, and the income may be earned from both UAE and overseas customers.

Professionals like physiotherapists, singers, actors, musicians, influencers, or sportsmen may receive requests to travel and provide services in other countries. If these requests are a result of the individual’s work in the UAE, the income earned from activities performed elsewhere could still be linked to activities conducted in the UAE.

If you don’t own a company or if you’re a professional like a doctor or lawyer, you may not have paid much attention to UAE corporate tax. However, it’s crucial to change that perspective. It is imperative to assess both the magnitude and nature of your income to determine the corporate tax implications for you as an individual.

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.

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