Navigating the UAE Corporate Tax as a Natural Person
A New Era for UAE Business: As the dust settles on the implementation of the UAE’s corporate tax regime, business owners are understandably grappling with its implications. For natural persons like you, conducting business activities in the UAE, navigating the new tax landscape is crucial. This blog delves into the specifics of the corporate tax’s impact on natural persons, equipping you with the knowledge and insights to make informed decisions for your business and finances.
Recent significant developments of the UAE tax landscape
2018
VAT Implementation: In 2018, the UAE rolled out a 5% Value Added Tax (VAT) on most goods and services. This move, aligned with other Gulf Cooperation Council (GCC) countries, aimed to broaden the tax base and generate additional revenue. This marked the first major step towards diversifying the government’s revenue sources beyond oil.
Excise Tax Introduction: In 2018, the UAE introduced a 5% excise tax on specific goods like tobacco, sugary drinks, and energy drinks.
2019
Economic Substance Reporting: In 2019, the UAE introduced Economic Substance Regulations (ESR) to combat base erosion and profit shifting (BEPS) practices by multinational corporations. Companies with limited economic activity in the UAE were required to demonstrate substantial economic substance (management, employees, assets) to benefit from tax treaties.
Country-by-Country Reporting: The same year, the UAE implemented Country-by-Country Reporting (CbCR) requirements, mandating multinational corporations with annual consolidated group revenue exceeding €750 million to file detailed reports on their global allocation of income and taxes.
2023
Corporate Tax Announcement: In 2023, the UAE took a landmark step by announcing the introduction of a 9% corporate tax on taxable profits exceeding AED 375,000, effective June 1, 2023. This move aligns the UAE with international tax standards and aims to diversify its revenue base beyond oil and traditional taxation schemes.
Liable for tax? Examining Your Taxable Sphere
First, let’s dispel the initial question: “Am I liable to pay tax ?” The corporate tax net ensnares natural persons like you if your business activities generate an annual turnover exceeding AED 1 million. Whether you’re a solopreneur juggling freelance projects, a partner steering a civil company, or the mastermind behind a thriving sole proprietorship, exceeding this threshold makes you a “Taxable Person.” However, if your primary income flows from wages, investments, or real estate, you can breathe a sigh of relief – these remain safely outside the tax realm for individuals.
Demystifying Taxable Profits: What’s In, What’s Out, and How to plan?
The tax authority focuses not on your overall income, but on the juicy slice your business activities create – your taxable profits. This means deducting legitimate expenses like cost of goods sold, operating expenses, employee salaries, and even depreciation from your annual turnover. The resulting figure, your taxable profit, then faces the tax system: 0% for profits up to AED 375,000, and a 9% tax on everything beyond that threshold.
Example 1:
