Under the UAE Corporate Tax (CT) Law, a natural person conducting a business or business activity in the UAE may, in certain circumstances, fall within the scope of CT on income derived from such activities.
This alert outlines a high‑level overview of the applicability of CT to natural persons and key considerations commonly encountered from a compliance perspective.
1. Applicability of CT to Natural Persons
| Aspects | Summary |
|---|---|
| Tax Residency |
|
| Tax Threshold | CT applies only where business income exceeds AED 1 million in a Georgian calendar year |
| Scope of Taxation | CT applies only to income arising from business or business activities, and does not apply to personal investment income, employment income, or real estate investment income |
| Compliance Obligations | Once within the scope, the compliance obligations include CT registration (one-time), return filing, transfer pricing, record keeping, and tax payment |
2. Income steams outside the scope of CT for natural persons
| Income Category | Key Conditions |
|---|---|
| Employment Income | Salary, wages, and employment related benefits received as an employee |
| Personal Investment Income | Income earned in personal capacity, not through a licence, and not considered a commercial business activity |
| Real Estate Investment Income | Income from selling, leasing, sub leasing, or renting real property in the UAE, provided no licence is required |
3. Key Considerations
| Issue | Key Considerations |
|---|---|
| Income Classification | Challenges may arise in distinguishing taxable business income from excluded income (e.g., personal investment or real estate investment income), particularly where real estate is held both under a license and in a personal capacity. |
| Threshold Computation (AED 1 million) |
|
| Multiple Trade Licences Compliance |
|
| Annual Threshold Assessment | The income threshold must be reassessed at each year end to determine whether a natural person becomes subject to CT for the relevant year |
| Common Bank Account | Challenges may arise in distinguishing personal and business income where a common bank account is maintained |
| Expense Allocation | Complexities may arise in allocating expenses between personal and business use (e.g., vehicle, phone etc.) |
| Record Keeping and documentation | A comprehensive set of records must be maintained, including invoices, bank statements, reconciliations, accounting records, financial statements, and fixed asset registers with depreciation details |