FAQs Article 1 – Definitions
Source: https://mof.gov.ae/corporate-tax-faq/
- Who is a Natural Person?
The term “Natural Person” in the Corporate Tax Law means an individual.
- Will individuals be subject to UAE CT?
Only individuals who engage in a business or business activity as per a Cabinet Decision that will be issued in due course will be subject to UAE CT. Individuals engaged in other activities will generally be outside the scope of the CT regime.
- What is the UAE CT treatment of a sole proprietorship or civil company?
For certain types of business activities, natural persons can form a sole proprietorship or civil company. For CT purposes, these entities will be treated as the natural person or persons owning them.
- Will an individual be subject to UAE CT on business income earned outside the UAE?
The taxable income of a natural person that is engaged in a business in the UAE is all the income that is derived from that business. This would include income earned from outside the UAE insofar as it relates to the business activity conducted in the UAE.
- What if an individual has multiple business activities that are in the scope of UAE CT?
The individual will file one CT return covering all their business activities that are within the scope of UAE CT.
- Will an individual’s employment income be subject to UAE CT?
UAE CT will not apply to an individual’s salary and other employment income (whether received from the public or private sector). Employment may include a continuing service relationship where all or most of the income of the individual is derived from one customer, and the service income is essentially remuneration for the natural person’s labour.
- Will self-employed persons (e.g. freelancers) be subject to UAE CT?
Self-employed persons would only be subject to UAE CT if their activity is a taxable business or business activity as per the Cabinet Decision that will be issued in due course. Even if the self-employed person is considered to be undertaking a taxable business or business activity, no CT would be payable on the first AED 375,000 of net income / profit earned from the activity, and further relief (small business relief) may be available to the self-employed person and other individual entrepreneurs.
- Will income earned by an individual from bank deposits be subject to UAE CT?
Interest and other personal investment and savings income earned by an individual in their personal capacity should not be subject to UAE CT.
- Will an individual be subject to UAE CT on investment returns?
UAE and foreign individuals will not be subject to UAE CT on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity.
- Will an individual be subject to UAE CT on income from real estate?
Income earned by an individual from the investment in UAE property in their personal capacity will generally not be subject to UAE CT.
- What is a juridical person?
A “juridical person” is an entity established or otherwise recognised under the laws and regulations of the UAE, or under the laws of a foreign jurisdiction, that has a legal personality separate from its founders, owners and directors. Examples of UAE domestic juridical persons include a limited liability company, a foundation, an ‘onshore’ trust, a public or private joint stock company, and other entities that have separate legal personality under the applicable UAE ‘mainland’ legislation or Free Zone regulations. UAE branches of a domestic or a foreign juridical person are regarded as an extension of their “parent” or “head office” and, therefore, are not considered separate juridical persons.
- What does it mean to have a ‘separate legal personality”?
Separate legal personality means that the entity has its own rights, obligations and liabilities. As a consequence, the owners of the juridical person would typically have limited liability when it comes to the debts and obligations of the entity.
- How do you determine whether a juridical person has a “Business” that is within the scope of UAE CT?
All activities undertaken by a juridical person will be deemed “business activities” and are within the scope of UAE CT, unless specifically exempted.
- Are foreign juridical persons subject to UAE CT in the same way as a UAE resident person?
No (see question 68 ‘Will foreign companies and other juridical persons be subject to UAE CT?’), unless the foreign juridical person is “effectively managed and controlled” in the UAE and treated as a resident entity for UAE CT purposes.
- When is a foreign juridical person considered “effectively managed and controlled” in the UAE?
This will need to be assessed on a case by case basis, and may look at the location where the key decision makers, such as the directors, make the strategic decisions affecting the juridical person.
- Will UAE holding companies be subject to UAE CT?
UAE holding companies would be subject to UAE CT (at a 9% CT rate or the 0% Free Zone CT rate), depending on whether the holding company is established in a Free Zone or in the mainland UAE, but dividends and capital gains earned from domestic and foreign shareholdings would generally be exempt from CT, subject to certain conditions.
- Will a sole proprietorship or civil company be treated as a juridical person for CT purposes?
No, but individuals who conduct business in the UAE through a sole proprietorship or civil company may be subject to CT where a relevant business or business activity is undertaken.
