The UAE’s corporate tax laws define an “individual” as a natural person. A legal person is an entity incorporated, established, or recognized under UAE or foreign jurisdiction laws and regulations and has a legal identity apart from its founders, owners, and directors.
The new tax legislation represents a turning point by establishing corporation tax, which now applies to some forms of income received by individuals or ‘natural persons.’
Are you confused about the term “natural and legal person”? Do you fall under this category? Does the UAE corporate tax apply to you? Do not worry; this article will guide you through the answers to these queries.
Who is a natural person?
The UAE’s corporate tax laws define an “individual” as a natural person.
This term refers to any living person, regardless of age, who may be considered a taxable person under the tax regulations.
Examples of Taxable Natural Persons
- Freelancers: These individuals provide services independently, with no typical work
- Self-Employed Professionals with Unlimited Liability Licenses: Professionals who provide expert advice are licensed, making them completely liable for corporate debts and
- Business Owners with Unlimited Liability Licenses: Entrepreneurs who manage and own firms with licenses that combine personal and commercial
- Social Media Influencers: People who use their digital presence and influence to grow their
A natural person is subject to UAE Corporate Tax if they generate an annual turnover of more than AED 1 million from a ‘Business’ or ‘Business Activity’ in the UAE, as stated by the Corporate Tax Law and Cabinet Decision No. 49 of 2023
Corporate tax rates
Corporate tax rates for natural persons will be applied at the following rates:
- 0% of taxable income not exceeding AED 375,000.
- 9% of taxable income exceeding AED 375,000.
The tax year for natural persons begins on January 1 and ends on December 31. This corresponds to the Gregorian calendar year.
If an owner passes away or the business closes, deregistration is applicable.
Natural persons are required to file Corporate Tax returns within nine months after the end of the applicable tax period, providing a detailed picture of all firms and business activities subject to Corporate Tax. Small enterprises with revenues of up to AED 3 million per tax period are eligible for small business relief.
This relief aims to reduce the tax burden on smaller businesses.
People must carefully follow these rules, making sure they pay their taxes and take advantage of any available relief options.
After the UAE’s Corporate Tax Law came into effect, people—individuals, independent contractors, business owners, and small enterprises—are actively assessing their earnings and tax status.
Additionally, because the corporate tax system in the United Arab Emirates is constantly changing, individuals, independent contractors, and business owners must stay informed about changes in the tax environment and seek professional advice when necessary to maximize financial strategies and guarantee compliance with the corporate tax law.
Excluded Income for Natural Persons under the Corporate Tax Law
Not all of a natural person’s income is regarded as taxable under Corporate Tax.
The Corporate Tax Law exempts the following categories of income from taxation.
- Wage: This is the income a natural person earns working or being employed under a contract or similar arrangement. This includes any pay that the employer provides to the employee, including salary, bonuses, allowances, and
- Personal investment income: This is the income a natural person earns from investing their wealth in various assets such as funds, stocks, bonds, loans, deposits, and other This also covers interest, dividends, capital gains, and other returns on such investments.
- Real estate income: This is the revenue earned by a natural person from owning, renting out, or selling real estate, which includes things like land,
buildings, homes, apartments, and other immovable assets.
This also includes rent, royalties, and other revenue from such property.
Other types of taxes applicable to the natural person
VAT (Value Added Tax)
Introduced in 2018, VAT is a consumption tax applied at 5% on most goods and services. Natural persons pay VAT when they purchase goods and services in the UAE.
Excise Tax
A tax on specific goods harmful to human health or the environment.
These include tobacco products, energy drinks, and carbonated beverages. Natural persons who purchase these items will pay excise tax as part of the purchase price.
Municipal Taxes
Some emirates impose municipal taxes on individuals, often related to property.
For example, Dubai has a housing fee, which is a form of municipal tax.
Who is a legal person?
A legal person is an entity incorporated, established, or recognized under UAE or foreign jurisdiction laws and regulations and has a legal identity apart from its founders, owners, and directors.
Separate legal personality indicates that the entity has rights, obligations, and liabilities distinct from those of its founders or owners.
Depending on their residential status for tax purposes, legal entities can be categorized as follows:
- Resident Legal Person
A legal entity qualifies as a Resident Person for Corporate Tax purposes in the UAE if it is incorporated, established, or recognized in the UAE, which encompasses juridical persons registered in Free Zones, or if it is incorporated or established outside the UAE but is effectively managed and controlled within the UAE.
In short, it refers to all businesses registered in the UAE and those that are controlled from the UAE despite not being registered or incorporated in the UAE.
- Non-Resident Legal Person
Foreign legal persons functioning in the UAE through a Permanent Establishment or with a taxable nexus in the UAE are subject to corporate tax.
Examples of the Legal Persons in UAE
The following are examples of Legal Persons (Juridical Persons) that are incorporated, established, or recognized in the United Arab Emirates (UAE) and
that have been created in accordance with UAE mainland legislation, as well as other entity forms that possess independent legal personality under applicable UAE mainland legislation or Free Zone regulations:
Public Joint Stock Companies (PJSCS): –
Public joint stock companies in the UAE have shares traded on the public stock exchange. Corporate entities are developed to ensure that shareholders’ interests are protected transparently. One important aspect is that shareholders are engaged in making decisions through general assemblies, with a board of directors supervising business matters.
Limited Liability Companies (LLCs):
Limited liability companies are popular in the UAE because of their flexibility and low liability for shareholders. LLCs, which typically require at least two shareholders, can have a variety of ownership structures. Governance is often administered by designated managers or board of directors.
Private Shareholding Companies (PSCs):
Private shareholding Companies in the UAE have a unique closed ownership structure, with shares limited to a selected number of individuals or groups. PSCs must follow corporate governance rules and have a governance structure with a board of directors monitoring business matters.
Other than this, it also includes:
- Civil Companies: Professional organizations comprise people who work in their respective fields, such as engineers, doctors, and
- Non-profit organizations: organizations formed for educational, charitable or societal
- Government Entities consist of departments, ministries, and other government
Scope Of Corporate Tax Applicability on Legal Persons
According to the new corporation tax legislation, the tax applies to legal persons who meet one of the following criteria:
- Incorporated in the UAE
- Companies from other countries that have a Permanent Establishment in the UAE or generate revenue from UAE-based
- This implies that if your company is registered in the UAE, has a branch, office, or other fixed place of company in the UAE, or generates money from activities or assets in the UAE, you will be subject to corporate
Final thoughts
The company tax scenario in the United Arab Emirates can only be successfully navigated by keeping up with legal requirements and staying informed.
Both natural and legal people should consider how they fit into the framework of the Corporate Tax Law and ensure that they adhere to the requirements for registration, reporting, and payment.
They can also seek assistance from a financial specialist, such as an accountant, who can classify financial income and expenses and arrange all financial records to help individuals file their taxes more effectively.
