UAE issues guide to determine corporate tax liability for individuals

It outlines criteria to determine whether they are subject to corporate tax law that came into effect on June 1

The Federal Tax Authority has issued a new guide outlining the criteria to determine individuals subject to the corporate tax law. Silvia Razgova / The National

The UAE's Federal Tax Authority has issued a guide for "natural persons" who generate income in the country or do business, to help them determine whether they are subject to corporate tax.

The guide provides a "comprehensive and simplified" explanation and instructions for natural persons making income in the UAE, the FTA said on Sunday.

The term natural person refers to a “living human person of any age, whether resident in the UAE or elsewhere”, according to the FTA.

The guide clarified that a natural person must register for corporate tax purposes and obtain a Tax Registration Number if their total turnover exceeds Dh1 million ($272,294) within a calendar year from 2024.

The guide is available on FTA website: https://tax.gov.ae//Datafolder/Files/Guides/CT/Taxation%20of%20natural%20persons%20-%2025%2011%202023.pdf

Non-resident natural persons are subject to corporate tax in cases where they have a permanent establishment in the UAE with a total turnover exceeding Dh1 million within a calendar year as of 2024, the guide said.

However, certain types of income such as employment income, personal investment income, or real estate investment income, are always exempt from corporate tax for natural persons, the FTA said.

The UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent starting from the financial year beginning on or after June 1.

Globally, corporate tax rates have declined over the past 40 years, with the worldwide average falling from more than 40 per cent to between 25 per cent and 30 per cent, the Tax Foundation in Washington said.

The FTA emphasised the importance of reading the new guide for a clear understanding of definitions related to natural persons who are subject to paying corporate tax.

The guide includes practical examples explaining how the corporate tax law applies to natural persons conducting business in the UAE, whether they are residents or non-residents.

The FTA urged all concerned natural persons (individuals) realising income in the UAE, or conducting business – wholly or partly – in the UAE, to refer to the new guide.

The authority called on them to "familiarise themselves with the corporate tax law, implementing decisions and other relevant materials available on the FTA’s website".

UAE officials have been releasing new decisions and guides on the corporate tax law since its implementation this year.

Last month, the UAE Ministry of Finance announced new corporate tax decisions for companies in free zones.

Under the regulations, companies operating in free zones can pay zero per cent tax on income from certain qualifying activities and transactions.

They can also benefit from a tax exemption on income earned from transactions with mainland UAE businesses or those in a foreign jurisdiction, the ministry said at the time.

In June, the ministry also outlined penalties for corporate tax infringements.

Penalties will be applied in cases of failure to file and pay corporate tax due on time, including failing to inform the FTA of changes that might require amendments to tax records.

Penalties also apply in cases of failing to properly keep records or failing to submit the required records and other information specified in the corporate tax law.

“Adhering to corporate tax compliance is a responsibility of all taxable persons to support the implementation of the corporate tax system in the UAE, which is in line with the highest global standards," Younis Haji Al Khoori, undersecretary at the Ministry of Finance, said at the time.