Navigating the UAE corporate tax as a natural person

A common misconception about the UAE tax landscape is that individuals in the UAE are in all instances not subject to any taxes. However, the Federal Decree Law No. 47 of 2022 on Taxation of Corporations and Businesses (the Corporate Tax Law) is in fact a tax on business or business activities, and thus also applies to natural persons (i.e. individuals) when they conduct business activities.

This article explores the UAE Corporate Tax Law and the recently released UAE Federal Tax Authority‘s (FTA) guide on the Taxation of Natural Persons CGTNP1 (Natural Persons Guide) to highlight the key risks for natural persons in the UAE in being subject to the UAE’s Corporate Tax where they conduct Business or Business Activities.

UAE corporate tax

The Corporate Tax will generally apply to the taxable income of a “Taxable Person” (that is not subject to special tax rates):

On taxable income not exceeding AED 375,000 at a rate of 0%; and
On taxable income exceeding AED 375,000 at a rate of 9%.

A Taxable Person may be either a natural person or a juridical person.

What is a natural person?

In the context of the Corporate Tax Law, a natural person refers to any living human being, regardless of age or residency status, including UAE citizens, residents and non-residents.

“Natural Persons” are Taxable Persons (and therefore subject to UAE Corporate Tax) where they are:

a Resident Person that conducts a Business or Business Activities in the UAE and income from Business or Business Activity exceeds AED 1 million;
a Non-Resident Person but have a Permanent Establishment (PE) in the UAE as per Article 14 of the Corporate Tax Law; or
a Non-Resident Person that derives State-Sourced Income that is accrued in or derived from activities performed, assets located, capital invested, rights used or services performed or benefited from in the UAE.

Please note that, when a natural person resides in the UAE and they conduct Business or Business Activities in the UAE, they are considered to be a Resident Person and, therefore, a Taxable Person for Corporate Tax purposes (subject to key considerations). Furthermore, and importantly, when a natural person resides outside the UAE – for instance, lives or has his/her home in another country – they as a matter of law, become a Resident Person for Corporate Tax purposes if they conduct Business or Business Activity in the UAE (even though they do not reside or live in the UAE when conducting business in the UAE). Therefore, unless application of a Double Taxation Agreement (DTA) has been invoked by a natural person, any natural person conducting Business or Business Activities in the UAE will be subject to UAE Corporate Tax.

Classifying “Business” or “Business Activities”

“Business” and “Business Activities” are defined under the UAE Corporate Tax Law as follows:

“Business” is defined as being any activity, whether continuous or short term, conducted regularly on an ongoing basis and independent basis.
“Business Activities” is defined comprehensively and includes any transaction or activity or series of transactions of activities conducted by a Person in the course of its Business.

Based on the broad definitions above, there are a significant number of activities that could be determined to be a Business or Business Activity conducted by natural person. Where such Business or Business Activity is conducted by natural person, any income derived from such activity would ordinarily be subject to Corporate Tax. However, and importantly, certain activities are specifically exempt from these definitions, and thus unequivocally not subject to Corporate Tax, such as the following:

Employment income: Employment income, including salaries and director fees, are exempt from corporate tax. This includes wages, bonuses and certain director type fees directly or contractually related to the employment of individuals.
Personal investment income: Income from personal investments conducted in the natural person’s personal capacity, and that is not conducted through a business license, or not considered a commercial activity under the UAE Commercial Transactions law, or does not require a business license, is also exempt from Corporate Tax. This includes gains from securities and personal asset sales. However, frequent trading or large-scale investment activities may be scrutinized and classified as Business Activities by the FTA. Please note however that where an activity is not considered a commercial business as per the Commercial Transactions Law, it will not automatically be considered a Personal Investment activity by the FTA.
Real estate investment income: Real estate investment income is exempt if it does not require a business license or other licence from any licensing authority. This is important as it remains unclear when the authorities require business licenses for certain real estate investment activities. Consideration may also need to be given to the manner in which the real estate investment activity is organized – for example, is such activity conducted in a “Business”-like manner?

Following the definitions of Business and Business Activities and having regard to the specific exemptions under the law, when trying to determine whether an activity conducted by a natural person is a Business or Business Activity for the purposes of the Corporate Tax Law, the following should be considered:

is the activity licensed or required to be licensed by a Licensing Authority? That is, does the natural person currently have a UAE business license to conduct the activities? But also, importantly, is there a requirement under any UAE law for the natural person to obtain a business license to conduct the activity, even though they do not currently have one?; or
is the activity organised in a manner that could be a Business? That is, is the activity being conducted on an ongoing basis, in an organised manner, as would be expected from a business? The FTA does not exclude short term activities from the “ongoing” so long as they are a series of transactions or activities as per the definition of Business.

On this basis, and following the guidance provided under the Natural Persons Guide, examples of natural persons conducting Business or Business Activities in the UAE, that may be subject to Corporate Tax, are as follows:

Consultants: Activities of an independent or self-employed consultant that is Licenced by a relevant UAE Licensing Authority can be easily identified as being a Business or Business Activity conducted by a natural person. Accordingly, where a Consultant makes a turnover exceeding AED 1 million, they would be required to register for Corporate Tax.
Influencers: Social media influencers are required to be licensed in the UAE, and may earn revenue either by way of cash or “in-kind payments”. Social media influencers that make an annual turnover exceeding AED 1 million or the monetary value of “in-kind” payments would be required to register for Corporate Tax.

Athletes, artists and sports persons: Natural persons who are athletes, sports persons or artists may be conducting a Business or Business Activity in the UAE and accordingly, income earned above AED 1 million from such activities may be considered taxable. In most jurisdictions, specific provisions apply to determining the income earned by such individuals for the purposes of determining their tax liabilities. In addition, many DTAs have special rules on determining where income should be taxed when earned by Athletes, Artists and Sports Persons.

However, in the absence of detailed guidance provided in the UAE Corporate Tax Law or tax guidance relating to Athletes, artists and sports persons, consideration needs to be given to what categories of income would be subject to tax as income from Business or Business Activities – for example, whether all prize money earned in the UAE would be income that is subject to UAE Corporate Tax, or whether all sponsorship revenue earned by a Sports Person who is resident of the UAE would be subject to UAE Corporate Tax. These aspects would have to be carefully considered with proper interpretation of the Corporate Tax Law.

Please note that, conversely, there may be instances where the activity is not subject to Corporate Tax. For instance, an employed Director of an entity who also acts as a Board Member may receive a fee for attending board meetings as well as their salary. Unlike the above examples, this person would not be subject to tax on any of the income earned, as the fee for attending a board is a director’s fee which should not be subject to tax.

PEs and state sourced income

In addition to income earned from Business and Business Activities, State Sourced Income is income earned by a UAE Resident Person, a UAE PE of a Non-Resident Person or income earned from activities performed, assets located, capital invested, rights used, or services performed or benefited from in the UAE.

An exhaustive list has not been provided by the FTA, but such income can include income from sales of goods or provisions of services, dividends from UAE companies, payments from UAE Businesses, royalties paid and interest income from a UAE bank account.

Consideration would need to be given to whether such income would be considered income related to Business or Business Activities in order to see whether such income would fall within the ambit of UAE Corporate Tax.

The implications and the calculation of turnover

As stated above, where the income is derived from Business or Business Activities, a UAE PE, or State Sourced income exceeds AED 1 million, natural persons must register for and pay UAE Corporate Tax at a rate of 9% on all income earned above AED 375,000.

In addition, there is a legal requirement to deregister a natural person where the business ceases to continue for any reason or in the event of the death of the taxable person (Article 52(1) of the Corporate Tax Law and Article 42 of the Tax Procedures Law). This should occur within 3 months of the business ceasing to operate (Article 2 of the FTA Decision No. 6 of 2023).

Notwithstanding the AED 1 million threshold, natural persons may be still eligible to claim Small Business Relief and not be subject to UAE CT where they derive revenue (or turnover) in a calendar year that does not exceed AED 3 million in this tax period and other tax periods. Importantly, the law states that the taxable person must be a Resident Person. However, as mentioned above, where a natural person conducts a Business Activity in the UAE, they will be considered as a resident person for tax purposes, even where they do not live in the UAE.

Conclusion

In conclusion, while the UAE has a reputation for being a tax-free haven for individuals, the Corporate Tax Law has significant implications for natural persons engaged in business activities within the UAE. Detailed consideration should be given to activities conducted by natural persons in the UAE to determine whether they would be subject to the UAE Corporate Tax due to carrying on a Business or Business Activity. As the UAE continues to refine its tax landscape, individuals doing business in the UAE must stay informed and should consider seeking professional tax advice to ensure compliance and avoid unexpected tax liabilities.

By: Zain Satardien and Aakriti Sharma

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