If a person lives and does business in the UAE, they are a UAE tax resident
By Mahar Afzal/Compliance Corner
Last week, the Federal Tax Authority (FTA) released a document titled “Corporate tax guidance CTGRNP1: registration of natural persons,” providing additional details on how corporate tax applies to natural persons, their registration criteria, and other procedures necessary to comply with the UAE corporate tax law.
The guidance explains that taxable persons can be categorised as either juridical persons and natural persons, and these persons can further be classified as either residents or non-residents.
A juridical person refers to an entity recognised under UAE laws or the laws of another country, possessing legal identity distinct from its founders, and owners. Examples of domestic juridical persons in the UAE include limited liability companies, foundations, onshore trusts, public or private joint stock companies, and other entities with independent legal identities.
The term “natural person” refers to a living human being, whether they reside in or outside of the UAE. If the natural person carries out business or business activities in the UAE as a sole proprietorship or unincorporated partnership or freelancer, there is no distinction between the individuals and their business.
If a person lives and does business in the UAE, they are a UAE tax resident. If a person lives outside the UAE but does business in the UAE and the double tax treaty between the UAE and their country is not applied, they are still considered a UAE tax resident. However, if the double tax treaty is invoked, generally they are considered a non-resident for UAE tax purposes.
Natural persons conducting business or business activities in the UAE and generating annual gross revenue exceeding Dh1 million in a Gregorian calendar year, are required to register in the UAE for corporate tax purposes. They must file the CT return and are responsible for making any necessary payments. The eligibility for small business relief does not exempt them from the obligation to register for corporate tax purposes.
The overall revenue should be assessed based on accrual basis of accounting, unless the natural person is using cash basis of accounting, in which case it should be calculated using the cash basis. In the case of minors or incapacitated individuals, the corporate tax responsibilities of the natural person will be carried out by their legal representative.
The tax period for natural persons consistently follows the Gregorian calendar year, commencing on January first and ending on December end. When computing a natural person’s gross revenue, the total revenue from all businesses of the person will be considered before deducting costs. However, income from salaries, personal investments, and real estate investments will not be factored to determine the above Dh1 million threshold has been exceeded.
UAE resident natural persons are required to pay tax on their global income related to the business or business activities in the UAE, whereas UAE non-resident natural persons are obligated to pay tax on income associated with the non-resident natural person’s permanent establishment in the UAE.
In determining whether income is connected to business activities in the UAE, one must take into account several factors, such as the location and residency of individuals involved in producing or selling goods or services, whether contracts or business development related to selling goods or providing services were coordinated from the UAE, and whether the assets contributing to the production of goods or provision of services are located in the UAE.
If natural persons are already registered for corporate tax with the FTA, they should not submit a tax deregistration application if any of their business activities are still ongoing, and even if their total turnover falls below Dh1 million within a Gregorian calendar year. Deregistration for Corporate Tax is only necessary if all business activities have ceased. In such a case, the deregistration application must be submitted within three months from the date when the business activities ceased.
Based on the above scope of the law, the natural persons are required to assess their position and apply the provisions of the law accordingly.
Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above is not an official of Khaleej Times but an opinion of the writer. For any queries/clarifications, please feel free to contact him at [email protected].