UAE Corporate Tax for Natural Persons : Registration, Rates & Exemptions
The introduction of corporate tax in the United Arab Emirates (UAE) on June 1, 2023, marks a historic shift in the Country’s fiscal policy. While the UAE has long been known for its business-friendly environment with minimal taxation, this new law aligns the nation with global tax standards and ensures sustainable revenue generation. Natural persons (individuals) conducting business activities in the UAE are among those impacted by this change.
The UAE introduced Corporate Tax to diversify its revenue streams and reduce dependence on oil revenues. Unlike the Value-Added Tax (VAT), which targets goods and services, Corporate Tax is levied on business profits. Understanding the scope and applicability of Corporate Tax is crucial for all business operators in the UAE.
Applicability of UAE Corporate Tax to Natural Persons:
Who is a “Natural Person” Under UAE Corporate Tax Law?
A natural person refers to an individual conducting business or business activities within the UAE. They are subject to Corporate Tax only when their total turnover exceeds AED 1 million in a Gregorian calendar year.
A natural person becomes liable for UAE Corporate Tax if:
- Conducting licensed business activities (freelancing, sole proprietorship, real estate rentals with a license).
- Annual turnover exceeds AED 1 million in a Gregorian calendar year.
- Income is derived from UAE-based business activities, even if non-resident (e.g., foreign freelancers with UAE clients).
- If the natural person has two or more sole establishment, then the threshold limit will be determined by adding the revenue of the sole establishments
Non-Taxable Cases:
- Employees earning salaries.
- Personal investments (dividends, savings) without a license.
- Unlicensed real estate rentals (e.g., renting a personal property).
Key Thresholds & Tax Rates
- 0% Tax: First AED 375,000 of taxable income.
- 9% Tax: Income exceeding AED 375,000.
- Registration Threshold: Mandatory if turnover > AED 1 million.
Example Calculation:
Ahmed earns AED 1.8 million in 2024:
- 0% on AED 375,000 = AED 0.
- 9% on AED 1,425,000 = AED 128,250.
- Total Tax: AED 128,250.
Exclusions & Exemptions: What’s Not Taxable
Exempt Income Types:
- Wages & Salaries: Including bonuses, allowances, and end-of-service benefits.
- Personal Investments: Dividends, interest, and capital gains from personal savings or unlicensed activities.
- Real Estate: Rental income from properties not requiring a license (e.g., residential leases).
UAE Corporate Tax: Registration & De-registration
Registration
- Eligibility:
- Businesses in the UAE are subject to Corporate Tax when their annual revenue exceeds AED 1 million.
- Partnerships are assessed based on individual partner income and business activities.
- Registration Process:
- A single Tax Registration Number (TRN) is issued for all business activities.
- New business ventures must be declared within the existing Tax Return.
- Retention:
- TRN remains active even below the AED 1 million threshold, unless business operations cease.
- Deadline:
- The Natural person should register by 31st March 2025 in order to avoid the penalty of late registration of AED 10,000.
De-registration
- Eligibility:
- Businesses must deregister within 3 months of ceasing all operations.
- De-registration is not applicable if any business activity continues.
- Process:
- A Tax Deregistration application is submitted to the Federal Tax Authority (FTA).
- All outstanding tax liabilities, returns, and penalties must be settled.
- Re-activation:
- The suspended TRN can be reactivated for new business ventures within the same year.
- Deceased Individuals:
- Taxable Person status ceases upon the individual’s demise.
- Tax liabilities are settled from the estate’s assets before distribution to heirs.
Corporate Tax Registration and De-registration for Natural Persons in the UAE
Corporate Tax Registration
In the UAE, natural persons conducting business must register for Corporate Tax if their total turnover exceeds AED 1 million in a calendar year. For individuals involved in Unincorporated Partnerships, registration is based on their share of the partnership’s income and business activities. Once registered, the same Tax Registration Number (TRN) applies to any new business ventures. If a person engages in new business activities, they must include them in their Tax Return under the same registration.
If turnover falls below AED 1 million in subsequent years, the individual retains their Corporate Tax Registration unless all business activities are ceased.
Key Points for Registration:
- Turnover threshold: AED 1 million
- Partnerships: Tax status based on share of income
- New businesses: Report under the same TRN
- Retention of registration: Valid even if turnover drops below AED 1 million, unless business ceases
De-registration of Corporate Tax Registration
Natural persons must submit a Tax Deregistration application within 3 months of ceasing all business activities. However, if any business remains active, deregistration does not apply, even if turnover drops below AED 1 million. A single Tax Registration Number is issued for all business activities, and deregistration occurs only when all activities cease.
If business activities end during the Tax Period, deregistration must be requested within 3 months, and the Tax Return must be filed within 9 months from the period’s end. Deregistration is contingent upon filing all necessary Tax Returns and paying any outstanding Corporate Tax or administrative penalties.
Deregistration Key Points:
- Application deadline: Within 3 months of ceasing all activities
- One TRN: For all business activities
- Tax Return due: 9 months from the end of the Tax Period
- Deregistration conditions: Clear of outstanding taxes and penalties
Tax Registration Reactivation After De-registration
If a natural person deregisters and later starts a new business in the same year, their Tax Registration Number can be reactivated for the new venture.
Taxation After Death of a Natural Person
In the unfortunate event of a natural person’s death, their taxable person status ceases. Corporate Tax liabilities prior to death are settled from the estate or income before distribution to heirs or legatees, in accordance with Article 42(1) of the Tax Procedures Law.
Key Points on Post-Death Taxation:
- Taxable status ceases after death
- Tax liabilities must be paid from the estate
- Article 42(1): Governs settlement of tax before distribution to heirs
What is the Tax Period for Corporate Tax in the UAE?
The Tax Period for natural persons subject to Corporate Tax in the UAE aligns with the Gregorian calendar year, from January 1 to December 31. The first Tax Period will start in 2024.
When Should Corporate Tax Returns Be Filed?
Natural persons classified as Taxable Persons must submit their Corporate Tax Return to the Federal Tax Authority (FTA) within 9 months from the end of the relevant Tax Period. To simplify, all business activities subject to Corporate Tax should be reported in a single Tax Return.
Can I File a Nil Tax Return?
If a natural person registers for Corporate Tax and their Turnover in the UAE does not exceed AED 1 million in a Tax Period, they must file a ‘nil’ Tax Return within 9 months. However, if Turnover exceeds AED 1 million, the standard Tax Return filing rules apply.
Small Business Relief
The Ministry of Finance issued Ministerial Decision No. 73 of 2023 to provide Small Business Relief under the Corporate Tax Law. This decision allows taxable persons with revenues below AED 3 million in a given tax period to apply for tax relief, reducing their Corporate Tax burden. The relief applies to tax periods starting on or after June 1, 2023, and remains in effect until December 31, 2026. However, businesses exceeding the AED 3 million threshold, Free Zone Persons, and members of MNE Groups are not eligible. Ministry of Finance.
Key Highlights
- Corporate Tax Applicability: Natural persons in the UAE are subject to Corporate Tax if their annual turnover from business activities surpasses AED 1 million within a Gregorian calendar year.
- Corporate Tax Rates:
- 0%: Applied to income up to AED 375,000.
- 9%: Applied to income exceeding AED 375,000.
- Exemptions: Specific categories are excluded from Corporate Tax, including wages, personal investment income, and real estate investment income, provided certain conditions are met.
- Deductible Business Expenditures: Business expenses can be deducted, subject to certain limits, while interest deduction rules are not applicable to natural persons.
- Tax Registration: Mandatory registration applies once turnover exceeds AED 1 million. Conversely, deregistration is required upon cessation of all business activities.
- Tax Period and Filing: The tax period aligns with the Gregorian calendar year, and Corporate Tax returns must be submitted within nine months after the end of the respective Tax Period.
- Small Business Relief Eligibility: Natural persons with taxable business revenue not exceeding AED 3 million during the relevant Tax Period or previous periods are eligible for relief.
What Corporate Tax Registration for Natural Persons in the UAE
Corporate Tax registration in the UAE is mandatory for natural persons when their annual business turnover exceeds AED 1 million. Deregistration is required upon ceasing all business activities. Tax periods align with the Gregorian calendar year, and Corporate Tax returns must be submitted within nine months following the year’s end. If the turnover remains below this threshold, the individual is not required to register for or pay corporate tax on their business income.
What is the difference between a legal person and a natural person in UAE Corporate Tax?
In UAE Corporate Tax terminology:
- Natural Person: An individual human being conducting business activities.
- Legal Person: An entity established under the law, such as companies, corporations, foundations, establishments, and other entities that have a legal personality separate from their owners.
Who is exempt from Corporate Tax?
Certain entities are exempt from UAE Corporate Tax, including:
- Government Entities: Federal and local UAE government bodies.
- Government-Controlled Entities: Entities wholly owned and controlled by the UAE government that meet specific criteria.
- Extractive Businesses: Businesses engaged in the extraction of natural resources, subject to Emirate-level taxation.
- Non-Extractive Natural Resource Businesses: Businesses involved in non-extractive natural resource activities, under certain conditions.
- Charities and Public Benefit Organizations: Organizations listed in a Cabinet decision that are established for the public benefit.
- Qualifying Public or Private Pension Funds: Funds that meet specific criteria outlined in the Corporate Tax Law.
- Investment Funds: Funds that meet the conditions prescribed by the Ministry Of Finance .
Who is eligible for Corporate Tax registration?
Corporate Tax registration is mandatory for:
- Legal Entities: All legal persons, including mainland and free zone companies, as well as foreign legal persons with a permanent establishment in the UAE or those earning UAE-sourced income.
- Natural Persons: Individuals conducting business activities in the UAE with an annual turnover exceeding AED 1 million.
What is qualifying income in UAE Corporate Tax?
“Qualifying Income” refers to income earned by a Qualifying Free Zone Person that is subject to a 0% Corporate Tax rate. The specific criteria and conditions for qualifying income are detailed in the Corporate Tax Law and relevant Cabinet Decisions.
What is the Corporate Tax base for a non-resident person in the UAE?
Non-resident persons are subject to UAE Corporate Tax if they have:
- Permanent Establishment (PE): A fixed place of business or other forms of presence in the UAE through which business is conducted.
- UAE-Sourced Income: Income derived from sources within the UAE, such as income from assets, services performed, or rights used in the UAE.
The Corporate Tax rates applicable are:
- 0%: On taxable income up to AED 375,000.
- 9%: On taxable income exceeding AED 375,000.