Cabinet specifies scope of trades, business activities under updated corporate tax in UAE
ALBAWABA – The government of the United Arab Emirates (UAE), issued a decision last week, identifying the specific unincorporated thresholds, trades and business activities subject to taxation under the recently updated law on Corporate Tax in UAE.
These trades, practised by ‘Natural persons’, i.e. unincorporated individuals or groups, whether citizens or residents, will be subject to taxation.
All taxable corporations are required to comply by June 1.
Notably, the updated corporate tax law was announced on January 31, 2022, and it covers both corporations and individuals.
Scope of new corporate tax on individuals
The corporate tax will be applicable to individuals only where the total turnover derived from the business/activity exceeds AED1 million within the duration of one calendar year.
Turnover means the consolidated gross amount of revenue from all business activities, not profit.
Regardless of the trade or business activity, all individuals will be subject to corporate tax in UAE once their revenues exceed the AED1 million threshold.
The law is applicable regardless of the duration of practice, whether once or for discontinued periods of time, or continuously.
It is also applicable regardless of whether the business is conducted partially or fully in the UAE. Whereas the specific taxable amount of a business that is partially conducted in the UAE required official evaluation.
Exemptions from the new corporate tax in UAE
Income from wages, personal investment and real estate investment will be exempt from corporate tax in the UAE.
Wages are defined, under the law, as amounts paid to employees in compensation for their services while working under an employment contract. These amounts include bonuses and allowances.
Personal investment income includes any investment activity conducted by a natural person, i.e. individual, for their own benefit directly. As long as it is not listed as a commercial business transaction as per the Federal Decree-Law No. 50 of the year 2022.
Real estate investment income includes amounts earned by a natural person in relation to, directly or indirectly, the sale, leasing, sub-leasing, and renting of land or real estate property in the UAE.
Individual business compliance
Individual businesses whose turnovers exceed the AED1 million threshold will have until the end of 2026 to comply with the updated corporate tax law.
Revenues in the years starting from June 2023, until 2026, that do not exceed AED3 will not be taxable.
