Corporate Tax Guide for Natural Persons

Tax is often seen as difficult and complex, and many people find it challenging to read, understand, and implement it within their businesses. Corporate tax in the UAE is no exception. To simplify the basics and make key concepts clear and easily understandable, we have put together the below important set of questions and answers that everyone in the UAE must be familiar with.

1 – Who is this information bulletin meant for?

This tax guide is for any individual or natural person who wants to know the following:

At what point does a natural person in the UAE have to start paying corporate tax?
What kinds of incomes earned by natural persons fall under corporate tax?
What is the rate of corporate tax applicable on natural persons?
How the tax period for natural persons is determined?
Under what conditions and circumstances must natural persons register for corporate tax?
What other and additional obligations apply to natural persons as per the corporate tax law?

2 – At what point does a natural person in the UAE have to start paying corporate tax?

According to the corporate tax law, a natural person is considered a taxable person if he/she fulfills specific requirements. The requirements are:

Natural persons conduct a Business or Business Activity within the UAE, or
Natural persons or individuals have a fixed place where they regularly carry out business in the UAE, or
They earn money that comes from within the UAE (also known as UAE-sourced income).

If the total turnover of a natural person from his/her business or the business activities surpasses AED 1 million over the course of a Gregorian calendar year starting on or after 1^st January 2024, only in this case, the corporate tax will be compulsory on the natural person. It is important to note that the revenue should be in excess of AED 1 million during the calendrer year (means Jan to Dec).

Example:

Revenue is above AED 1 million from January to December 2024, you must register for corporate tax.
Revenue if less than AED 1 million from January to December 2024, corporate tax registration is not required.
Revenue from Mar 2024 to Feb 2025 is above AED 1m, corporate tax registration is not required unless your revenue from business or business activities exceeds AED 1 million during a calendar year (Jan to Dec). Mar 2024 to Feb 2025 is not a calendar year, it is a rolling year. You should check your revenue from Jan to December 2024, Jan to December 2025, and so on, and if it exceeds AED 1 million during the calendar year only then you should register for corporate tax.

Salary, personal investments, and money earned from real estate investments by a natural person are not included under Corporate Tax. Additionally, these types of earnings are also excluded when calculating whether the AED 1 million annual turnover threshold for Corporate Tax registration has crossed.

3 – What kinds of incomes earned by natural persons fall under corporate tax?

Only the income a natural person earns from carrying on a business or business activities in the UAE is considered for corporate tax purposes, and this is what determines whether the AED 1 million turnover threshold has exceeded or no.

For natural persons, the following types of income are not taxed under the corporate tax law:

A wage is the money or other benefits someone receives for working under a job contract. This can be a salary, bonus, or any type of payment. If a natural person earns money as an employee, not from his/her own business, then that natural person is not required to register and pay corporate tax on that income.
If a natural person earns money from personal investments like dividends, interest, or selling shares, corporate tax is not payable on such income provided the natural person is doing it privately and not through a business license. For example, James invested AED 1m in different shares listed in DFM and ADX, dividend income or capital income from selling these shares will not be subject to corporate tax.
Income from real estate, like selling, renting, or leasing property, is not taxed under corporate tax if a natural person earns it from personal investment, not through a business license or any activity that requires a license in the UAE.

When the AED 1 million income threshold requirement is met, the next logical step is registration for corporate tax. Please read our comprehensive guide on corporate tax registration deadline for natural persons and juridical persons.

4 – What is the rate of corporate tax applicable on natural persons?

When a natural person earns more than AED 1 million from their business or business activities in the UAE during a calendar year, they will be charged as:

0% tax on the part of the taxable income that is AED 375,000 or less; and
9% tax on the part of the taxable income that is more than AED 375,000.

5 – How the tax period for natural persons is determined?

For natural persons, the tax year follows the regular calendar, starting on January 1 and ending on December 31. This means the first tax year that applies to natural persons is 2024, running from January 1, 2024, to December 31, 2024.

6 – Under what conditions and circumstances must natural persons register for corporate tax?

Natural persons who run a business or doing business activities in the UAE are required to register for corporate tax if their total income from these activities goes over AED 1 million in a calendar year starting from January 1, 2024.

If a natural person is doing business in the UAE during 2024 or any year after that, and their total income from those activities goes over AED 1 million (during a calendar year), they must register for corporate tax by March 31 of the following year.

If a natural person is supposed to register for corporate tax but doesn’t apply for registration on time, there will be a late registration fine of AED 10,000.

7 – What happens if a natural person has already registered for corporate tax, but in a later year their business income goes below AED 1 million?

If a natural person has already registered for corporate tax with the Federal Tax Authority (FTA) and later on their business income drops below AED 1 million in a future year, they should not cancel their registration unless they’ve completely stopped doing business.

They will still keep their tax registration number and must submit a ‘nil’ tax return (showing no tax owed) by September 30 of the year after the calendar year when their income went below AED 1 million.

8 – When does a natural person need to cancel their corporate tax registration?

If a natural person has registered for corporate tax and later on stops running the business or business activities for any reason, like closing it down or shutting it permanently, they need to apply for deregistration with the FTA. But the condition is the business or business activity has ceased. The deregistration application must be filed within 3 months of the business cessation.

A natural person is allocated just one Tax Registration Number for all their businesses. So, if a natural person has more than one businesses, a tax deregistration application should only be filed when business or business activities of all the businesses have ceased and discontinued.

9 – What does the Corporate Tax Law say about making and keeping financial statements?

If a natural person is required to pay corporate tax, they usually have to use the accrual method for keeping financial records. But if their total business income is AED 3 million or less, or in special cases approved by the FTA, they are allowed to use the cash method instead.

A natural person who has to pay corporate tax usually needs to prepare their financial statements using IFRS. But if their total income is AED 50 million or less, they can use IFRS for SMEs. It is specially made for small and medium-sized businesses. The financial statements should include all the business activities a natural person does that are taxed under corporate tax, added together in one report.

If a natural person earns more than AED 50 million from their business activities, they must prepare and keep audited financial statements, audited by a UAE audit firm, for that tax year. Anyone doing business and paying corporate tax must keep all the related records and documents for 7 years after the end of the tax year they belong to.

10 – How much time does a natural person have to file their tax return?

Tax return for the applicable natural persons should be filed within 9 months after their tax year ends. Also note that only 1 tax return should be filed for all the businesses and business activities conducted by that natural person.

Vertix Auditing

Vertix Auditing is a leading corporate tax advisor to small-and medium-sized companies, startups, large scale organizations, free zones, qualified free zone companies, and multinational companies operating in the UAE. Please contact us on contact@vertixauditing.ae for any tax related consultation.

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