The introduction of corporate tax (CT) in the UAE has raised many complications. One major concern is whether individuals need to pay corporate tax. Many assume that only companies are taxed, but this is not always true. Under UAE tax laws, some individuals, known as natural persons, may also be subject to corporate tax. Understanding who qualifies as a natural person for tax purposes is essential to avoid penalties and ensure compliance.
Tax Gian, helps you understand your tax responsibilities in the UAE better so that you can always ensure compliance.
Who Is Considered a Natural Person under Corporate Tax UAE?
A natural person, in the context of UAE corporate tax, is an individual who conducts business or business activities within the country. However, not every individual is required to register for corporate tax. The key factor is whether the person earns business income above a certain threshold.
When Does a Natural Person Pay Corporate Tax in UAE?
A natural person is required to register for and pay corporate tax if:
- They conduct business or business activities in the UAE.
- Their total turnover from such activities exceeds AED 1 million within a calendar year (January to December).
If a person’s business income does not exceed AED 1 million, they do not need to register for corporate tax.
Income That Is Not Taxed
Not all types of income are considered taxable under corporate tax laws. The following sources of income are not subject to corporate tax:
- Wages and Salaries: Employment income earned from a job, whether in cash or benefits, is not taxable under corporate tax.
- Personal Investment Income: If an individual earns income from personal investments that do not require a business license, it is exempt from corporate tax.
- Real Estate Investment Income: Profits from selling, leasing, or subleasing property in the UAE are not taxable, provided the activity does not require a business license.
Â
UAE Corporate Tax Registration for Natural Persons
If a natural person meets the AED 1 million turnover requirement, they must register for corporate tax. The registration deadline is before March 31st of the year following the year in which the income threshold was exceeded. Failure to register on time may result in a penalty of AED 10,000.
For example, if a person’s business income in 2024 exceeds AED 1 million, they must register for corporate tax by March 31, 2025.
Deregistration from Corporate Tax in UAE
If a natural person stops doing business in the UAE, they must apply for deregistration. This must be done within three months of the business ceasing operations. This applies to businesses that close due to liquidation, dissolution, or other reasons.
Financial Statement Requirements
Natural persons subject to corporate tax must maintain financial records. The type of accounting method depends on the turnover:
- Turnover below AED 3 million: Financial statements can be maintained on a cash basis.
- Turnover above AED 3 million: Financial statements must follow the accrual basis.
- Turnover above AED 50 million: Financial statements must be audited following IFRS standards.
All financial records must be kept for at least seven years from the end of the relevant tax period.
Filing Corporate Tax Returns in UAE
A natural person subject to corporate tax must file tax returns within nine months from the end of the relevant tax period. This means tax filings for a given year must be submitted by September 30th of the following year.
Common Misconceptions about UAE CT
One of the myths is that people in the UAE pay no taxes. Yet, as per Federal Decree-Law No. 47 of 2022, corporate tax is imposed on both entities and individuals carrying out business operations. This implies that not only businesses but also self-employed individuals, freelancers, and sole proprietors with income over the threshold have to abide by tax regulations.
Compliance with corporate tax rules is vital to anyone with a business operating in the UAE. Those doing business activities will have to evaluate whether their revenue surpasses the AED 1 million. When it does, they are required to be registered for corporate tax, keep accounts, and make returns in due time so that they can prevent penalties.Â
Why Choose Tax Gian?
Staying informed about tax matters keeps one compliant and prevents paying excessive fines. Our expert consultants at Tax Gian provide you with more services than keeping you up to date. They help you stay in compliance, deal with tax issues, and prepare for taxes beforehand. So, choose our experts today!
