The UAE Federal Tax Authority has published a Basic Tax Information Bulletin, in which it provided clarifications about the scenarios where natural persons may be subject to corporate tax.
According to the FTA’s bulletin, natural persons are considered to be Taxable Persons under the Corporate Tax Law to the extent: they are conducting a Business or Business Activity in the UAE, or have a Permanent Establishment, or derive State Sourced Income (i.e. income that is accrued in, or derived from, the UAE).
Natural persons conducting Business or Business Activities in the UAE are only required to register for Corporate Tax purposes once the total Turnover derived from such Business or Business Activities exceeds AED 1 million within a Gregorian calendar year that begins on or after 1 January, 2024.
However, a natural person is subject to Corporate Tax on their Business or Business Activities only where the total Turnover derived from their Business or Business Activities conducted in the UAE exceeds AED 1 million within a Gregorian calendar year that begins on or after 1 January, 2024.
If a natural person’s total Turnover from their Business or Business Activities conducted in the UAE does not exceed AED 1 million within a Gregorian calendar year, they do not have to register for, or pay, Corporate Tax on their income from the Business or Business Activities.
Wage (employment income), Personal Investment income, and Real Estate Investment income derived by a natural person are out of scope of Corporate Tax and are not taken into account for the purpose of determining the AED 1 million Turnover threshold.
Incomes of natural persons that are subject to corporate tax
Only income derived from a Business or Business Activity conducted in the UAE by a natural person is subject to Corporate Tax and included in the Turnover threshold.
For a natural person, income from the following categories is not subject to Corporate Tax, and is not included in the Turnover threshold, regardless of the amount:
- Wage is income which is given to the employee in consideration of their services under an employment contract, including any compensation or benefit received, whether in cash or in-kind. Thus, a salary or other form of remuneration received by a natural person as an employee from their employer is not subject to Corporate Tax.
- Personal Investment income, including Dividends income, Interest income and gains or loss from sale of investments, is not subject to Corporate Tax when derived by natural persons from an investment activity conducted in their personal capacity that is neither conducted through a Licence or requiring a Licence from a Licensing Authority, nor considered a commercial business in accordance with the Commercial Transactions Law.
- Real Estate Investment income is not subject to Corporate Tax when it is earned by a natural person from an investment activity related directly or indirectly to the selling, leasing, sub-leasing, and renting of land or real estate property in the UAE, which is not conducted, or not required to be conducted, through a Licence issued by a Licensing Authority in the UAE.
Corporate Tax rate for natural persons
When the Turnover derived by a natural person from its Business and Business Activities in the UAE in a Gregorian calendar year exceeds AED 1 million, the Taxable Income of a natural person will be subject to Corporate Tax at the following rates:
- 0% on the portion of the Taxable Income not exceeding AED 375,000; and
- 9% on the portion of the Taxable Income that exceeds AED 375,000.
Tax Period for natural persons
The Tax Period for a natural person is the Gregorian calendar year (from 1 January until 31 December). Hence, the first potential Tax Period for natural persons is the 2024 Gregorian calendar year (1 January 2024 to 31 December 2024).
