UAE has introduced Corporate Tax with effect from 1st June 2023. Now, understanding the obligations and requirements of Corporate Tax regime becomes essential, particularly for natural persons engaging in business activities within the UAE. There is a separate guide issued by the UAE Tax Authority on registration of natural persons. In this article, we provide a comprehensive overview of the tax registration process for natural persons under the UAE Corporate Tax Law.

Tax Registration Obligations:

The UAE Corporate Tax is applied on a self-assessment basis, which means that all the taxable persons are responsible for assessing their tax liabilities and fulfilling their tax obligations on their own. Now, for a natural person to determine whether registration for Corporate Tax is necessary, one need to evaluate certain criteria such as residency status, business activities conducted, and total turnover generated in a year.

Before we begin, lets understand who is a Natural person?

For the purpose of UAE Corporate Tax, the term “natural person” is defined as an individual as per the FAQs. A natural person would only be subject to Corporate Tax insofar as such person conducts a Business or Business Activity in the UAE. This includes sole establishments and individual partners in Unincorporated Partnerships that conduct a Business or Business Activity in the UAE. A Natural person can either be a resident or a non-resident person.

As per the Guide issued by the UAE Tax authority, Corporate Tax will apply on the natural person including the requirement to register for Corporate Tax, where such person is:

Ø Is a Resident Person;

Ø Is a Non-Resident Person with a Permanent Establishment in the UAE;

Ø Carries on a Business or Business Activity in respect of which he/she derives a total Turnover in excess of AED 1 million; and

Ø the Turnover is not derived from:

1.    Wage,

2.     Personal Investment, or

3.    Real Estate Investment

Resident vs. Non-resident Natural Persons:

Residency plays a crucial role in determining tax obligations under the UAE Corporate Tax Law. While physical residence in the UAE is a factor, residency for tax purposes lies even beyond the mere presence in the country. Natural persons conducting business activities within the UAE, regardless of nationality or visa status, are considered resident persons for tax purposes. On the other hand, non-resident persons may still be subject to Corporate Tax if they have a permanent establishment in the UAE or derive state-sourced income exceeding certain thresholds.

Definition of Business and Business Activity:

The concept of business and business activity under the Corporate Tax Law is broad and encompasses various transactions or activities conducted by natural persons. Whether an activity constitutes a business is determined based on factors such as regularity, independence, and ongoing nature. Activities conducted in the UAE, including commercial, vocational, or professional endeavours, fall within the purview of Corporate Tax, while certain non-business activities such as wage earnings, personal investments, or real estate investments are exempt from taxation.

Calculation of Turnover:

The determination of turnover is a critical aspect of assessing tax liabilities for natural persons. Turnover includes gross income derived from all business activities conducted within the UAE during a specified period. It encompasses revenues generated from sole proprietorships, partnerships, or any other business entities in which the natural person has an interest. However, income from wage earnings, personal investments, or real estate investments is excluded from turnover calculations.

Tax Registration Process:

Registering for Corporate Tax is a straightforward yet essential process for natural persons operating within the UAE. The registration can be completed through the EmaraTax portal, with existing VAT or excise tax registrants using their login credentials. New registrants need to create login credentials and submit the registration application along with relevant documentation to the Federal Tax Authority (FTA). Upon approval, the FTA issues a tax registration number, enabling the natural person to fulfill their tax obligations.

Documentation Requirements:

To facilitate the tax registration process, natural persons are required to provide certain information and documentation, including contact details, passport copies, Emirates ID copies (if applicable), sole establishment details (if applicable), and any existing VAT or excise tax registration details. Ensuring the availability of these documents streamlines the registration process and ensures compliance with regulatory requirements.

Obligations post-registration:

Once registered for Corporate Tax, natural persons are subject to various administrative obligations, including filing tax returns, retaining relevant records, and updating registration details as necessary. Tax returns must be filed within the prescribed timeline, typically within nine months following the end of the tax period. Additionally, natural persons are required to maintain accurate records for a specified period and inform the FTA of any changes to their registration details promptly.

FTA's Authority to Register:

The Federal Tax Authority holds the authority to register natural persons for Corporate Tax in cases where individuals fail to register despite meeting the eligibility criteria. This discretionary power enables the FTA to ensure compliance and enforce tax regulations effectively. However, individuals have the right to appeal against tax assessments issued following FTA-initiated registrations if they disagree with the decision.

Conclusion:

Navigating the tax registration process under the UAE Corporate Tax Law is essential for natural persons engaged in business activities within the country. By understanding the eligibility criteria, documentation requirements, and procedural aspects outlined by the Federal Tax Authority, individuals can ensure compliance with tax regulations and avoid potential penalties. Seeking professional guidance and staying informed about updates to tax laws further enhances compliance and fosters a conducive business environment in the UAE.