Understanding UAE Corporate Tax Law for Natural Person Business

 | Updated on: June 11, 2024

Corporate Tax, also known as corporate income tax, or business profits tax, is a direct tax that businesses should pay on their net income or profit. The entities mandated to pay tax include a business conducted by a natural person. In this article let us understand who a natural person is with respect to corporate tax rules of UAE.   

Who is a natural person?

An “individual” is referred to as a natural person according to the corporate tax laws in the UAE. A living human being, irrespective of his/her age, who may be considered as a taxable person based on the tax regulations is called a natural person. Here are some important points about corporate taxes for a natural person:

• A natural person must pay the corporate tax in the UAE if their annual turnover from a business or business activity in the country exceeds AED 1 million
• If a natural person earns income from multiple businesses or business activities, the aggregate income of all these businesses will be calculated. If this aggregate annual income exceeds AED 1 million, they will need to pay corporate taxes.

Citizenship and visa status of a natural person

A natural question in the minds of businesses would be what if the natural person is not an Emirati. A natural person should pay corporate taxes if their annual turnover is more than 1 million AED for businesses conducted in the UAE. The citizenship status or the visa status of the person doesn’t make any difference here.

Now the question would be, ‘Should a natural person pay corporate taxes in the UAE on business income earned outside the country?’. According to the law, natural persons should pay corporate taxes for business income earned outside the UAE, if the income is from a business or business activity conducted inside the UAE.

Rental income of natural persons

When a natural person owns more than one commercial property in their name, and when the annual aggregate rental income from these properties exceeds AED 1 million, this will be excluded from taxable income under the Corporate Tax Law in the UAE.

However, note that exclusions are only possible if such a business or business activity is not required to be conducted through a license issued by an authorized licensing authority in the UAE.

Income sources that are tax exemptible

While most business activities come under the purview of UAE corporate tax, there are certain income sources that are exempt from tax. Given below are business activities in the UAE that are excluded from corporate tax charges.

• Income from employment – Corporate tax not applicable on salary and wages of employees, including bonuses and allowances, if any
• Income from personal investments – Tax not applicable for income, interest, and dividends earned from investments in the personal capacity of natural persons
• Income from real estate investments – Tax not applicable for income earned from a direct or indirect investment in land or real estate property in the UAE; a licensing authority in the UAE does not / need not provide a license for such investments.

Natural persons can claim a full tax exemption under the small business relief program. There are certain requirements that a business must satisfy to be eligible under this program. Read our article on small business relief to understand more.

Filing tax returns means finding if your business is subject to tax and then carefully tabulating your income sources. Compiling financial data for tax computation is not easy if you don’t have the right accounting software.

An accounting software like TallyPrime can organize all your ledgers and automatically categorize your financial income and expenditure. Your invoices will be generated automatically without any errors. This will make your tax compliance much easier as you would be able to gather organized financial data at the click of a button.