Introduction:
The Federal Decree-Law No. 47/2022 on the Taxation of Corporations and Businesses (Corporate Tax Law), establishes the legislative framework for imposing federal tax on corporations and business profits in the UAE. This article aims to provide an overview of the implications of the Corporate Tax Law on natural persons, outlining key considerations, exemptions, and the overall tax landscape.
The Federal Tax Authority (FTA) published a comprehensive guide for the corporate tax guidance CTGRNP1: registration of natural persons, the corporate tax guide provides further explanation on how corporate tax applies to natural persons, criteria for registration, and other procedures necessary to comply with the UAE corporate tax law.
Juridical and Natural Persons:
According to the Corporate Tax Law, as explained in the FTA’s guide CTGRNP1, taxable persons are categorized into two categories —juridical persons and natural persons. Juridical persons include entities recognized under UAE laws or foreign laws, holding a legal identity distinct from their founders. Natural persons refer to living human beings, and if engaged in business activities in the UAE, these natural persons may be further classified as either residents or non-residents, and their business is independent of their individual identity
Tax Residency Criteria:
Residency is an essential element in the tax framework. A person residing or conducting business in the UAE is considered a tax resident. Even if residing outside the UAE, a person with a business in the UAE can be deemed a tax resident, unless a double tax treaty applies. The double tax treaty may result in non-residency for UAE tax purposes.
Mandatory Registration for Natural Persons:
Natural persons conducting business in the UAE with annual gross revenue exceeding AED 1 million are obliged to register for corporate tax. The registration process, as outlined in the corporate tax guidance: CTGRNP1, requires filing corporate tax returns and authorizing the payment of taxes.
Assessment of Revenue:
The assessment of overall revenue is based on an accumulation basis of accounting unless a cash basis is utilized. Minors or incapacitated individuals have their tax responsibilities managed by their legal representatives. The tax period for natural persons aligns with the Gregorian calendar year, starting on January 1st and ending on December 31st.
Taxation of International Income:
UAE resident natural persons are required to pay tax on their international income related to business activities in the UAE. Non-residents, on the other hand, are obligated to pay tax on income associated with their permanent establishment in the UAE.
Determining Business Activity:
Several factors determine whether income is linked to business activities in the UAE. These include the location and residency of individuals involved, coordination of contracts or business development from the UAE, and the location of assets contributing to the production of goods or provision of services.
Deregistration Considerations:
Deregistration for Corporate Tax is required only when all business activities cease. Existing registrants may not submit a tax deregistration application if any business activities continue, even if total turnover falls below AED 1 million within a calendar year. The application may be submitted within 3 months of business cessation.
Registration Process for Natural Persons:
The registration process for natural persons involves submitting an application through the EmaraTax portal. Existing VAT or Excise Tax registrants may use their login details, while new registrants need to create credentials. The application, along with supporting documentation, is reviewed by the FTA, and upon approval, a Tax Registration Number is issued.
Conclusion:
Natural persons should thoroughly assess their positions in the background of the Corporate Tax Law, ensuring compliance with registration, reporting, and payment obligations. Staying informed and adhering to the provisions of the law is essential for navigating the UAE’s corporate tax landscape effectively.
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