The UAE’s Ministry of Finance on Wednesday clarified that individuals conducting business activities will be subject to corporate tax and registration requirements only if their combined turnover exceeds Dh1 million a year.
A statement issued by the ministry added that personal income earned from employment, investments, and real estate without licensing requirements is not subject to corporate tax.
The issuance of UAE Cabinet Decision No. 49 of 2023 avoids bringing the non-business income of individuals into the scope of corporate tax, including wages or personal investment income, among others.
The UAE issued Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses. This means businesses will be subject to nine per cent corporate tax from the beginning of their first financial year that starts on or after June 1, 2023.
Under the law, companies whose profits exceed Dh375,000 will be subject to corporate tax. Profits of up to and including that threshold will be taxed at a 0 per cent rate to support small businesses and start-ups.
Citing an example, the ministry on Wednesday clarified that a UAE resident running an online business — with a combined annual turnover exceeding Dh1 million — would be subject to corporate tax. However, if the UAE resident also earns income from rental property and personal investments, these sources of income would not be subject to corporate tax as they fall under the out-of-scope categories.
“The new Cabinet decision demonstrates the UAE's commitment to maintaining a clear and competitive tax framework for both local and foreign individual investors. By simplifying the corporate tax system, the UAE continues to foster an attractive business environment that supports the growth of small businesses, startups, and the overall economy,” said Younis Haji Al Khouri, undersecretary of the Ministry of Finance.
Nirav Shah, director at Fame Advisory DMCC, said this is good news as a lot of individuals were anxiously waiting for clarification on whether the tax will apply to rental income that they earn under personal names.
“Even a threshold of Dh1 million turnover is a welcome move for individuals doing freelancing or start-up business. It's overall a welcome notification,” he said.
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