Introduction

Overview

The Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, also known as the Corporate Tax Law, was issued on October 3, 2022, and published in Issue #737 of the Official Gazette of the United Arab Emirates (UAE) on October 10, 2022. This legislation serves as the foundation for implementing a federal tax on corporations and business profits in the UAE. The Corporate Tax Law is set to be effective for Tax Periods commencing on or after June 1, 2023.

Tax Registration Obligations

The UAE Corporate Tax system operates under a self-assessment regime, requiring natural persons to assess their liability for Corporate Tax and fulfill related obligations.

Who is a Taxable Person?

A Taxable Person, as defined by the Corporate Tax Law, can be a natural person or a juridical person. Registration for Corporate Tax is generally mandatory for most Taxable Persons, except for Non-Resident Persons solely deriving State Sourced Income without a Permanent Establishment in the UAE.

Resident Natural Person

Residence status for Corporate Tax purposes is determined based on whether a natural person conducts business activities in the UAE, rather than physical residence. Both residents and non-residents engaging in UAE business activities may fall under the definition of a Resident Person.

Non-Resident Natural Person

Non-resident natural persons may have tax obligations if they have a Permanent Establishment in the UAE. The applicability of a Double Taxation Agreement can impact the tax status of non-residents.

What is a Business and a Business Activity?

The Corporate Tax Law defines Business and Business Activity comprehensively, encompassing various transactions and activities conducted in the course of business. The law distinguishes between ongoing and short-term activities, ensuring that even short-term commercial activities can be subject to Corporate Tax.

Business or Business Activities Subject to Corporate Tax

Natural persons conducting Business or Business Activities in the UAE may be subject to Corporate Tax if their total Turnover exceeds AED 1 million within a Gregorian calendar year.

When is a Natural Person Not Subject to Corporate Tax?

Certain types of income, such as Wage, Personal Investment income, and Real Estate Investment income, are not considered arising from Business or Business Activity and are excluded from Corporate Tax calculations.

Calculation of Turnover

Definition of Turnover

The total Turnover of a natural person is calculated based on gross income derived during a Gregorian calendar year from all Business or Business Activities conducted in the UAE. Certain types of income, such as Wages, Personal Investments, or Real Estate Investments, are excluded from this calculation.

Tax Period

The Tax Period for a natural person subject to Corporate Tax is the Gregorian calendar year, running from January 1 to December 31. Eligibility for Small Business Relief does not affect the obligation to register for Corporate Tax when total Turnover exceeds AED 1 million.

The Tax Registration Process for Corporate Tax

How to Register

The registration process for Corporate Tax is conducted through the EmaraTax portal. Existing registrants for Value Added Tax or Excise Tax can use their current login details, while new registrants need to create new login credentials.

Tax Registration Process

Natural persons required to register for Corporate Tax must submit a registration application with supporting documentation. The Federal Tax Authority (FTA) reviews each application, aiming to respond within 20 business days. Key information and documentation requirements are outlined for a seamless registration process.

Other Procedural Aspects

Persons Already Registered for Other Taxes

Natural persons registered for Value Added Tax and/or Excise Tax must also register for Corporate Tax if within its scope. Tax agents can act on behalf of natural persons, and those not registered for other taxes but under Corporate Tax must register accordingly.

Obligations Once Registered

Once registered for Corporate Tax, natural persons have administrative obligations, including filing tax returns, retaining records for seven years, and updating registration details promptly.

FTA Power to Register a Person for Corporate Tax

The FTA can register a natural person for Corporate Tax if deemed a Taxable Person who failed to register. The natural person has the right to appeal such a decision.

Deregistration

1. Cessation of Business or Business Activity

Natural persons ceasing Business or Business Activities should deregister within three months of cessation. Deregistration approval depends on fulfilling all tax obligations.

2. Death of a Natural Person

Upon the death of a natural person, Corporate Tax liabilities are settled from the estate. Clearance certificates may be obtained, and heirs may be held responsible for outstanding tax liabilities.

In conclusion, understanding the intricacies of the UAE Corporate Tax Law is crucial for natural persons engaged in business activities within the UAE. Compliance with registration, filing, and deregistration processes ensures a smooth and transparent tax environment. For further details, readers are encouraged to refer to Cabinet Decision No. 49 of 2023 and consult with tax professionals if needed.

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