Do individuals have to pay Corporate Tax?
General rule
As per Cabinet Decision No. (49) of 2023, business owners in the country will be subject to corporate tax only if their combined turnover in a calendar year exceeds Dh1 million (around $272,294). The aim of the decision is to clarify how the corporate tax regime will apply to UAE residents and non-residents.
For instance, if a sole proprietor generates over 1 million AED in annual revenues from their combined retail business registered in the mainland UAE, the profits of that business would now be subject to the 9% corporate tax rate.
Exemptions
Importantly, the Ministry has confirmed that personal income from sources like employment, investments, and real estate will not be taxed. So corporate tax liability will arise solely based on business or licensed commercial activity income earned by a taxpayer.
However, the following incomes also would fall outside the tax net as per the clarification:
- Interest Income
- Dividend Income
- Capital Gains earned in personal capacity
- Rental Income
Taxability
On the individual whose income crosses the limit UAE will be imposing a 9% rate on taxable annual profits exceeding 375,000 AED. Small businesses with revenues below that were kept tax-exempt. Additionally, in April 2023, the Ministry launched a Small Business Relief program exempting firms with under 3 million AED in annual revenue from tax liabilities for an initial period until the end of 2026. This provides headroom for SME growth.
In short,
Overall, individuals operating registered businesses in the UAE can breathe easy knowing that exceeding 1 million AED in revenues will not by itself land them in a tax liability trap. Proper strategic compliance continues to be advised, though, to pre-empt uncertainties.
Consultants specializing in the UAE market can help entities and entrepreneurs incorporate, file necessary registrations, and handle reporting requirements upon commencing operations. The technology solutions offered by them simplify regulatory adherence remotely.
How can Digits help you?
The taxation structure in the United Arab Emirates (UAE) has gained a lot of attention in recent times. Keep oneself updated is difficult in an individual point of view. Our specialists track policy updates, advising clients on implications. Technology-enabled services allow remote regulatory compliance and reporting. The experienced tax consultants at Digits can assist you in getting your tax liabilities sorted and staying complied to all the tax laws prevailing in UAE. We can help you navigate your taxable income and maintain all the required documents that may be mandatory. To know more about our personalized services, feel free to contact us now.
