The Public consultation document discusses who are the proposed taxable persons for the new 9% Corporate Taxation in the UAE.
Understand who is a taxable person and who is exempt from taxation is essential to understand if you need to meet the compliance requirements for corporate taxation and pay 9% on the taxable income.
Are Natural Persons required to comply with the 9% Corporate taxation?
When we refer to a natural person, it is referring to individuals.
There will be no income tax or taxes on employment income or other personal incomes, which include the following –
- Dividends,
- Rental receipts from UAE real estates,
- Other investment income,
- Other investments that are held through a family or private trust, where the beneficiary are natural persons.
If a natural person conducts other business or commercial activity without incorporating a company, this can invite corporate taxation. In general, if the individuals are required to get a commercial license or equivalent permit in the mainland or Free Zone to conduct this activity it will be taxed as per the corporate tax regulations.
What is the Tax treatment for legal persons?
Corporate tax applies to all legal persons in UAE and foreign legal persons that have a permanent establishment in the UAE or earn UAE-sourced income.
As per the public consultation document for corporate tax, the following will be treated as a taxable persons for corporate taxes –
- Limited Liability Companies,
- Private Shareholding Companies,
- Public Joint Stock Companies,
- Other entities established under the UAE laws,
- Limited Liability Partnerships,
- Partnerships limited by shares, and
- Other types of partnerships
Limited and general partnerships and other unincorporated joint ventures and associations of persons will be treated as ‘transparent’ for UAE CT purposes. This means that they will not be taxpayers in their own right, but their income will instead ‘flow through’ and be taxed in the hands of the partners or members only.
This may become challenging when taxes from other countries are involved, and the other countries do not use the transparent concept and instead consider them as a company. To avoid complexity, the UAE corporate tax treatment would follow the treatment of the respective foreign jurisdiction.
One point to note here is that if a follow-through treatment is used and the members are going to be taxed directly, the threshold for tax compliance would be based on each member and not on the net income of the unincorporated business
Who is exempt from Corporate Taxation?
The following will not be considered as taxable persons-
- The Federal and Emirate governments and their departments, authorities and other public institutions,
- Wholly Government-owned UAE companies that carry out a sovereign or mandated activity, and that are listed in a Cabinet Decision,
- Businesses engaged in the extraction and exploitation of UAE natural resources that are subject to Emirate-level taxation,
- Charities and other public benefit organizations that are listed in a Cabinet Decision,
- Public and regulated private social security and retirement pension funds, and
- Investment funds, subject to meeting certain conditions.
What are the main conditions for an investment fund to be exempt from taxation?
An investment fund will be exempt from being a taxable person as per the consultation document if the following conditions are met-
- The investment fund is regulated by a regulatory authority in the UAE that is recognized by the ministry of finance. For example-
- Securities and Commodities Authority,
- Financial Services Regulatory Authority
- Dubai Financial Services Authority
- No group of 5 investors or their related parties own more than 50% of the investment fund
- No single investor or their related parties own more than 20% of the investment fund.
- Interests in the investment fund can be freely traded on a stock exchange in the UAE (or recognized foreign stock exchange), or are widely marketed and made available to the intended categories of investors.
In summary we can say that in general personal incomes are not taxed, while business or corporate incomes will be taxed as long as they do not fall in the few specific categories listed as exempt from corporate taxation
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