FTA issues New Guide on Corporate Tax for Natural Persons

The introduction of corporate tax in the UAE represents a paradigm shift in the country’s business landscape. The UAE corporate tax law provides a legislative basis for imposing a federal tax on the profits of corporations and businesses.

However, the UAE corporate tax will be imposed on natural persons or individuals subject to certain conditions. The Federal Tax Authority (FTA) has released a new guide to explain the applicability of corporate tax on individuals in the UAE. Corporate tax consultants in the UAE can help you accurately interpret the new FTA Guide.

Read ahead to learn more about the FTA Guide on Taxation of Natural Persons under the Corporate Tax Law:

When does the UAE Corporate Tax Law apply to individuals?

The corporate tax law applies to individuals to the extent they are performing a business or business activity in the UAE, have a Permanent Establishment in the UAE, or derive State Sourced Income (i.e. income that is accrued in, or derived from, the UAE).

The following points will help you determine the taxability of individuals under the UAE corporate tax law:

• A natural person who conducts a Business or Business Activity in the UAE is considered to be a Taxable Person, and a Resident Person as defined in the Corporate Tax Law.
• A natural person is subject to Corporate Tax on their Business or Business Activity only where the total Turnover derived from Business or Business Activities conducted in the UAE exceeds AED 1 million within a Gregorian calendar year.
• Income from categories such as Wage, Personal Investment income, and Real Estate Investment income will not be treated as deriving from a Business or Business Activity. Such types of income will be disregarded when determining Turnover. Those types of income are not subject to Corporate Tax regardless of the amount.

Interest Deduction for Natural Persons

If an individual is subject to corporate tax in the UAE, the General Interest Deduction Limitation Rule does not apply. The Interest expenditure will be fully deductible for a natural person provided that the Interest expenditure is incurred wholly and exclusively for the purposes of the natural person’s Business, and meets the arm’s length principle.

Juridical Persons Vs Natural Persons

A juridical person is a legal entity with a separate personality. Ownership of a juridical person by a natural person does not in itself make the natural person a Taxable Person. Corporate tax advisers in Dubai can provide you with further advice in this matter.

Sole proprietorship and Natural Persons

A sole proprietorship is a legal structure where the business entity is owned by a natural person on his/her own account and in his or her own name, as the case may be.

The UAE corporate tax law considers the sole proprietorship and the natural person as one and the same because of their direct relationship and Control over the Business and their unlimited liability for the debts and other obligations of the Business.

In this case, the natural person conducting the Business will be the Taxable Person, not the sole proprietorship itself. If you are the owner of a sole proprietorship, corporate tax consultants in the UAE can guide you on your tax obligations.

Natural Persons and Unincorporated Partnerships

An Unincorporated Partnership is a relationship established by contract between two Persons or more. The UAE corporate tax law treats each partner in an Unincorporated Partnership as an individual Taxable Person.

However, the partners can formally request the FTA to treat the Unincorporated Partnership as a Taxable Person. If FTA approves the application, the income of the Unincorporated Partnership will be taxed at the level of the Unincorporated Partnership instead of at the level of the partners.

Natural Persons and Family Foundations

Individuals can set up a Family Foundation to hold and manage personal assets and investments for asset protection, succession, etc. It can be in the form of a contractual trust, a private trust company, a foundation or any other similar entity.

If a Family Foundation is a juridical person, it would be subject to Corporate Tax in the UAE. Any investment income of its founder, settlor or any of its beneficiaries would be subject to Corporate Tax at the Family Foundation level.

Any income received by natural persons, as beneficiaries, from a Family Foundation that is a Taxable Person would not be Taxable Income in the hands of the beneficiary as it would be investment income already subject to Corporate Tax at the Family Foundation level. However, they can apply to the FTA to be treated as an unincorporated partnership.

Corporate Tax Registration for Individuals

Individuals conducting Businesses or Business Activities in the UAE that are subject to Corporate Tax are only required to register for Corporate Tax once the total Turnover derived from such Businesses or Business Activities exceeds AED 1 million within a Gregorian calendar year.

Corporate Tax Deregistration of Individuals

A natural person who is a tax registrant can file a Tax Deregistration application with the FTA in case of cessation of Business or Business Activity whether by dissolution, liquidation, or otherwise. The application for corporate tax deregistration should be filed within three months of the date of cessation of the Business or Business Activity.

Accounting Standards and Financial Statements

Individuals whoa are taxable persons must prepare standalone Financial Statements in accordance with International Financial Reporting Standards (“IFRS”). If  their Turnover does not exceed AED 50 million, they can apply for “IFRS for SMEs”.

The Financial Statements should be prepared based on the aggregation of all the Business and Business Activities subject to Corporate Tax that are conducted by the individual. If natural persons derive Turnover exceeding AED 50 million, they must prepare and maintain audited Financial Statements for the relevant Tax Period.

Tax Returns for Natural Persons

Individuals who are taxable persons need to file a Corporate Tax Return to the FTA no later than 9 months from the end of the relevant Tax Period. A single Tax Return must be submitted to the FTA for all their Businesses and Business Activities subject to Corporate Tax in the UAE.

Natural persons who have registered with the FTA for Corporate Tax after meeting the relevant conditions, will be required to file a ‘nil’ Tax Return within 9 months following the end of subsequent Tax Period in which their total Turnover derived from the Business or Business Activities conducted in the UAE does not exceed AED 1 million.

Hire the Best Corporate Tax Consultants in Dubai, UAE

The FTA’s Guide offers valuable insights into the taxability natural persons under the UAE corporate tax regime. However, seeking professional assistance is key to properly complying with the UAE corporate tax law. Tax Gian, a brand of Jitendra Tax Consultants (JTC), can help you navigate all issues related to corporate tax.

We are one of the top corporate tax consultants in Dubai with a team of highly qualified tax experts at your service. Tax Gian can guide businesses on all aspects of the UAE corporate tax law including tax registration, formation of tax groups, transfer pricing etc. Call us today to avail yourself of comprehensive corporate tax consulting services in Dubai, UAE.