As per the proposed new UAE corporate tax law coming into effect from or after June 1, 2023, individuals and legal persons are subject to and exempt from corporate tax under certain criteria. Individuals are any regular persons who either carry out a business in the UAE as a freelancer, earn an income or carry out investments in the UAE. Limited Liability Companies, Private Shareholding Companies, Public Joint Stock Companies, and other entities with separate legal personalities established under UAE law are examples of legal persons. In our blog, we cover these categories briefly.
Corporate Tax Regime for Individuals
According to the Frequently asked questions on the Ministry of Finance (MoF), individuals will be imposed with corporate tax when they carry out a business in the UAE under a commercial license such as a freelance license.
Individuals however will not be subject to UAE Corporate tax on:
- Salaries and any other income earned from employment, whether private or public sector.
- Personal Investments in real estate unless a commercial permit or license is needed to carry out the activity.
- Capital gains, dividends and any other income that is earned from holding personal equity investments.
- Interests and any other income received from saving schemes or bank deposits.
Legal Persons & Corporate Tax: Who is Applicable?
- Any UAE companies and legal persons that are incorporated in the UAE or are foreign organizations that have permanent formation in the UAE or that draw income sourced from the UAE are subject to corporate tax.
- Legal persons incorporated in a foreign jurisdiction that is effectively managed and controlled in the UAE will be treated as if they were UAE incorporated firms and will be subject to Corporate Tax.
- For UAE Corporate tax purposes, limited and general partnerships, as well as other unincorporated joint ventures and organizations of persons, shall be treated as “transparent.” This means they will not be individual taxpayers; instead, their income will ‘flow through’ and be taxed only in the hands of the partners or members. This flow-through technique is well-known and accepted around the world, and it assures tax neutrality for investors in collective investment funds, which are frequently formed as limited partnerships.
- Unincorporated partnerships that are done through cross-border investing may present issues and unexpected consequences relating to tax, if one country treats the partnership as transparent and the other taxes it as a corporation. To bring about harmony in the tax treatment of partnerships in a cross-border situation, the UAE Corporate tax of international unincorporated partnerships shall usually follow the tax treatment of the partnership in a suitable foreign jurisdiction.
- If none of the partners of Limited Liability, limited by shares and any other types of partnerships carries unlimited liability for the promises of the partnership or the actions of the other partners, then they are liable to UAE corporate tax in the same way that a UAE business is.
Final Thoughts
Different businesses may want to review their corporate systems once the regime takes effect in order to take advantage of the possible tax savings.
We would be pleased to provide corporate tax advice to individuals and firms which will help them assess the impact of the proposed Corporate tax UAE on their current corporate structures, as well as determine any opportunities that may arise as a result.
Abrar Ahmad holds a Master’s as well as an MPhil in Finance and has an extensive experience of 10+ years in managing all aspects of Taxation, VAT Consulting and Accounting. He also carries with him a working knowledge of corporate tax and has helped drive value and growth to the businesses of numerous clients.
