The Ministry of Finance (MoF) of the United Arab Emirates (UAE) released a new Corporate Tax Law on 9th December 2022 to implement the corporate tax regime in the UAE. The new regime will come into effect for the accounting periods beginning on or after 1st June 2023
The Corporate Tax Law shall be applicable to both resident and non-resident persons. Further, the resident persons included natural persons that conduct business activity in UAE. There was uncertainty regarding how the natural persons (i.e., individuals) will be taxed considering that there was no personal income tax in UAE. The recent clarification by MoF on corporate tax solved this uncertainty.
To bring clarification to this uncertainty, the Ministry of Finance (UAE) announced the issue of Cabinet Decision No. (49) of 2023. This decision clarifies the tax treatment of resident and non-resident individuals that undertake business activity in the UAE. As per the clarification, the natural persons will be subject to corporate tax only if their combined turnover exceeded AED 1 million in a calendar year. The personal income from investments, employment or real estate will not be taxed. Let’s understand this with a simple example.
If an individual conducts a business and his turnover during the calendar year exceeds AED 1 million, then the income from such business would be subject to corporate tax. However, if he earns rental income from real estate as well as income from other investments, then such other income won’t be subject to corporate tax. These incomes fall under out-of-scope categories.
This decision bolster the UAE government’s commitment to a competitive and clear taxation framework. The government is trying to simplify corporate taxation in UAE to create and support an attractive business environment that promotes startups, small businesses and the overall economy. For more information on Corporate Tax Law in UAE and its applicability, feel free to contact the ASC Group.
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