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UAE: Will 9% corporate tax apply to personal income, investments? Ministry clarifies

Under the law, companies whose profits exceed Dh375,000 will be subject to corporate tax

The Ministry of Finance on Wednesday clarified that individuals conducting business activities in the UAE will be subject to corporate tax only if their combined turnover exceeds Dh1 million a year.

A statement issued by the ministry added that personal income earned from employment, investments, and real estate without licensing requirements is not subject to corporate tax.

The issuance of UAE Cabinet Decision No. 49 of 2023 avoids bringing the non-business income of individuals into the scope of corporate tax, including wages or personal investment income, among others.

The UAE issued Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses. This means businesses will be subject to nine per cent corporate tax from the beginning of their first financial year that starts on or after June 1, 2023.

Under the law, companies whose profits exceed Dh375,000 will be subject to corporate tax. Profits of up to and including that threshold will be taxed at a 0 per cent rate to support small businesses and start-ups.

Citing an example, the ministry on Wednesday clarified that a UAE resident running an online business — with a combined annual turnover exceeding Dh1 million — would be subject to corporate tax. However, if the UAE resident also generates income from rental property and personal investments, these earnings would not be subject to corporate tax as they fall under the out-of-scope categories.

“The new Cabinet decision demonstrates the UAE's commitment to maintaining a clear and competitive tax framework for both local and foreign individual investors. By simplifying the corporate tax system, the UAE continues to foster an attractive business environment that supports the growth of small businesses, startups, and the overall economy,” said Younis Haji Al Khouri, undersecretary of the Ministry of Finance.

Nirav Shah, director at Fame Advisory DMCC, said this is good news as a lot of individuals were anxiously waiting for clarification on whether the tax will apply to the rental income that they earn under personal names.

“Even a threshold of Dh1 million turnover is a welcome move for individuals doing freelancing or start-up business. It's overall a welcome notification,” he said.

Anurag Chaturvedi, CEO of Andersen UAE, said this landmark decision will relieve several residents of their worry about being subject to tax for their incomes beyond their salaries.

He explained that salary (perks, allowances and bonuses), rental income on real estate, and investment income (from bonds, shares, and other securities) are not taxable.

However, Chaturvedi clarified that any income earned by an individual outside the employment contract; freelance work; fees for influencers and artists performing art in their individual capacity with a turnover of over Dh1 million will be subject to nine per cent corporate tax, he said.

Pratik Shah, founding partner of TMSL Management Consultancies Co., noted that the Dh1 million threshold is not kept at par with the limit for small business relief, which is Dh3 million.

“Further, in cognizance of the fact that such individuals may not be maintaining audited financials, the revenue threshold has been mapped to a calendar year, i.e. from January 1 to December 31,” he said.

“It is evident that the decision was issued keeping in mind promoting ease of business while moving towards advanced tax transparent regime.”

Mayank Sawhney, managing director at MaxGrowth Consulting, explained that the salaries, personal investment income, and personal real estate income earned by individuals — for which they are not required to obtain licences — will be kept outside the purview of corporate tax. Hence, natural persons or individuals earning such income will neither be required to register themselves for corporate tax nor file any corporate tax returns.

“This will encourage residents and non-residents to further invest in real estate, shares, and bonds, etc, markets in UAE.”

He further clarified that the Dh1 million limit is also a big relief for a number of individuals, who carry out business activities — such as making and selling paintings, conducting home tuition classes — at a very small scale, without taking any company licence.

Mayank Sawhney said this Cabinet decision can potentially be subject to different interpretations and hence, he advised all individuals who are earning income from any form of business activity in UAE to read the Federal Law No. 50 of 2022. This way, they will be able to understand whether or not their business activities require licences.

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