Everything You Need to Know About UAE Corporate Tax for Natural Persons
According to the UAE Ministry of Finance, corporate tax is set at 9% on profits above AED 375,000, effective from June 2023. This rule also applies to individuals who own and operate their own businesses once their total business income exceeds AED 1 million annually.
This article will provide a brief overview of the UAE’s Corporate Tax regime, highlighting key aspects such as management, required documents, obligations, and penalties.
What Counts as Taxable Income and What’s Exempt for Natural Persons?
Corporate tax registration UAE applies to natural persons engaged in commercial, industrial, or professional activities under a valid trade license. This can include people who are in the consulting profession or freelancing without a business license.
The UAE Corporate Tax does not target the following:
- Income from employment – Salaries or wages of employees
- Income from personal investments – interest or dividend earned from investments
- Income from real estate – rental income earned from real estate property in the UAE
For natural persons, exempt income includes salaries, wages, and personal income. Passive investment without licensing requirements, and income below the AED 1 million business turnover threshold is generally exempt. Under Small business relief, natural persons can claim a full tax exemption if their annual business income is below AED 3 million.
When Tax is Applied to Natural Persons?
For natural persons, corporate tax applies only when your business turnover exceeds AED 1 million in a calendar year. You are not liable for taxes below this amount. You must determine your taxable income and make the appropriate tax amount once your earnings surpass the threshold.
A non-resident natural person is taxable in the UAE only on income sourced from UAE businesses or commercial activities.
Example:If a non-resident runs a UAE-based consultancy or receives income from UAE, that income is subject to UAE corporate tax.
Income earned outside the UAE or from activities not connected to a UAE business is not subject to UAE corporate tax.
Example: Income from freelance work performed entirely outside the UAE or bank interest earned outside the UAE is generally non-taxable.
After registration, your taxable profits are calculated, and a 0% rate applies on income up to AED 375,000, while 9% applies on income exceeding AED 375,000.
Example: If a freelance consultant earns AED 1.2 million a year and has AED 200,000 in expenses, their taxable profit is AED 1 million. The first AED 375,000 is tax-free, and 9% tax applies to the remaining AED 625,000.
Importance of Proper Financial Records
Keeping well-organized financial records is crucial. Invoices, receipts, and cost records are examples of supporting documentation that the FTA may require. These protect you in the event of an audit and assist you in the verification of your taxable income. You must keep the supporting documents for a period of 7 years following the end of the tax period.
Some relevant supporting documents are as follows:
- Maintain invoices and receipts for all business activities.
- Ensure your contracts and agreements are updated and legally valid.
- Track and document expenses and revenues.
- Don’t forget to store financial statements for quick reference and checks.
- Use professional corporate tax services in the UAE to avoid mistakes.
It is recommended to maintain the financial records in cloud storage to ensure safety and allow for quick and easy access.
What Happens if You Don’t Comply?
Failure to comply with Corporate Tax rules and regulations can be costly. Non-compliance includes:
- Missing or delaying your registration
- Providing incorrect or incomplete information
- Late submission of tax returns beyond the due date
Managing Your Tax Matters in the UAE
Tax Registration, records maintenance, filing tax returns and tax planning are the key steps to stay compliant. Audit firms in Dubai like Premier Auditing & Accounting LLC is known for providing reliable corporate tax services in UAE.
Previous
