Corporate Tax Implications for Individuals Earning Business Income in the UAE: Who is Affected?

The recently introduced Corporate Tax is applicable on every juridical person established or operating in UAE and every natural person (individuals) conducting business or business activity in UAE. There are a number of speculations regarding whether all the natural persons that are conducting business or business activities in the United Arab Emirates are subject to Corporate tax. In line with UAE’s position as a leading global hub for business and investment, Cabinet Decision 49 of 2023 was issued which provided a big clarity and relief to the natural persons conducting business or business activities in UAE.

The threshold

As per the Cabinet decision 49 of 2023, the threshold of AED 1 million has been introduced for natural persons. The aim of the decision is to clarify how the Corporate Tax  regime will apply to UAE residents and non-residents. The decisions clarifies that any natural person whether a resident or non-resident, whose annual turnover from all the business or business activities does not exceed AED 1 million in a calendar year is not subject to Corporate Tax and hence, not required to get registered.

For instance, if a sole proprietor in UAE conducts trading business offline as well as online with annual revenues exceeding AED 1 million from the combined businesses, the proprietor will be required to get registered under the Corporate tax and the profits of that business would now be subject to the 9% corporate tax rate. However, if the combiner turnover from all the business operations does not exceed AED 1 million, corporate tax will not be applicable to such person.

In addition to the relief threshold, the Ministry has also confirmed in the said decision that any other income like salary/wages, income from rent, lease, sub-lease of real estate in personal capacity or returns from personal investments will not be taxed under the Corporate Tax. Thus, it is clear that corporate tax liability for a natural person/ individual will arise solely based on licensed business activity income earned by a such person. This decision comes as a big relief and support to small-scale businesses in the UAE and it aligns with the government's aim of adopting a clear, consistent, and stable regulatory regime that promotes investment.

Conclusion

Keeping these broader context points in mind, the Cabinet Decision 49 of 2023 provides much-needed clarity. It clarifies that merely crossing an annual turnover threshold does not automatically trigger corporate tax exposure for natural persons. Tax compliance liability will emerge only for profits generated via business operations.

Despite the threshold of AED 1 million, it is of utmost importance to properly segregate commercial and personal sources of earnings. Thus, it is highly suggested to maintain proper records segregating commercial and personal activities which can help identifying the business threshold as and when required. As long as business revenues are identified and recorded appropriately, natural business owners do not have to worry about the impact of corporate tax on their income.

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