Corporate tax, also known as corporate income tax or business profits tax, is a direct tax that businesses must pay on their net income or profit. This includes businesses operated by natural persons. In this article, we will explore who qualifies as a natural person under the UAE corporate tax rules.
Who is a Natural Person?
A “natural person” is defined as an individual according to the corporate tax laws in the UAE. This refers to any living human being, regardless of age, who may be considered a taxable person based on the tax regulations. Here are some key points about corporate taxes for natural persons:
A natural person must pay corporate tax in the UAE if their annual turnover from business or business activities in the country exceeds AED 1 million.
If a natural person earns income from multiple businesses or business activities, the aggregate income of all these businesses will be calculated. If this aggregate annual income exceeds AED 1 million, they will need to pay corporate taxes.
Citizenship and Visa Status of a Natural Person
A common question for businesses is whether the natural person must be an Emirati to pay corporate taxes. Corporate tax obligations in the UAE are based on the annual turnover from businesses conducted within the country, not on citizenship or visa status. Therefore, a natural person must pay corporate taxes if their annual turnover exceeds AED 1 million, regardless of their citizenship or visa status.
Another question might be whether a natural person needs to pay corporate taxes on business income earned outside the UAE. According to the law, natural persons are required to pay corporate taxes on business income earned outside the UAE if the income is generated from business activities conducted within the UAE.
Rental Income of Natural Persons
If a natural person owns more than one commercial property and the annual aggregate rental income from these properties exceeds AED 1 million, this income will be excluded from taxable income under the Corporate Tax Law in the UAE. However, this exclusion applies only if such a business or business activity is not required to be conducted through a license issued by an authorized licensing authority in the UAE.
Income Sources Exempt from Tax
While most business activities are subject to UAE corporate tax, certain income sources are exempt. These include:
Income from Employment: Corporate tax is not applicable on salaries, wages, bonuses, and allowances of employees.
Income from Personal Investments: Tax is not applicable to income, interest, and dividends earned from investments made in a personal capacity.
Income from Real Estate Investments: Tax is not applicable to income earned from direct or indirect investments in land or real estate properties in the UAE, provided a licensing authority does not require a license for such investments.
Natural persons can claim a full tax exemption under the small business relief program, subject to meeting certain eligibility requirements. Refer to our article on small business relief to understand more.
Simplifying Tax Compliance
Filing tax returns involves determining if your business is subject to tax and accurately calculating your income sources. Compiling financial data for tax computation can be challenging without the right accounting software.
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