[Based on the Public Consultation Document released by the Ministry of Finance, UAE on 28 April 2022.]
The UAE Corporate Tax (‘CT’) has proposed to tax the income of all persons, except natural persons. Income earned by natural persons (individuals) shall not be subject to tax, except in certain circumstances.
The below chart shows various taxable persons under the UAE Corporate Tax regime.
It has been made clear that there is no intention to parallelly tax the income of the natural person. Therefore, employment income and other personal income earned by UAE residents and foreign individuals will not be within the scope of the proposed UAE Corporate tax regime.
The treatment of income earned by Natural Persons (Individuals) under the UAE Corporate Tax regime is summarized hereunder:
|Salary and other employment income (whether received from the public or private sector)||CT Not Applicable|
|Individual’s Business income earned under a commercial license||CT Applicable|
|The investment in real estate by individuals in their personal capacity||CT Not Applicable provided the individual is not required to obtain a commercial license or permit to do the activity|
|Rental receipts from UAE real estate investments are held in a personal capacity||CT Not applicable|
|Other Investment Income (investment held in a personal capacity)||CT Not applicable|
|Dividends, capital gains, and other income earned from owning shares or other securities in their personal capacity||CT Not Applicable|
|Interest and other income earned by an individual from bank deposits or saving schemes||CT Not Applicable|
|Income earned by individuals from activities carried out under a freelance license / permit OR from an activity which requires a license/permit to perform such activity as per local laws||CT Applicable|
|Type of legal entity||Taxability|
|Legal Person (Limited Liability Companies, Private Shareholding Companies, Public Joint Stock companies, and other entities that have separate legal entities) incorporated in the UAE||CT Applicable|
|Legal Person incorporated in a foreign jurisdiction, but effectively managed and controlled in the UAE||CT Applicable, as if UAE incorporated|
|Limited liability partnership/partners limited by shares (where no partner has unlimited liability)||Treated as UAE Company - CT Applicable (Entity will be subject to tax and not the partners)|
|Limited and general partnership / other unincorporated joint ventures and AOP||Treated as transparent entities – partners/members taxable|
|Collective Investment funds that are structured as limited partnerships||Treated as transparent entities – partners/members taxable|
|Foreign unincorporated partnerships||To follow the tax treatment of the respective foreign jurisdiction|
The Consultation Document has brought in the concept of Place of Effective Management (‘POEM’). This triggers tax implications when the residents of the UAE conduct business by establishing legal entities outside the UAE. In this scenario, there is a possibility that these legal entities (ies) (which are managed and controlled in the UAE) established outside the UAE may be taxable in both jurisdictions and will have to determine the taxability based on the tie-breaker Rule of the Tax Treaty between the two jurisdictions.
It is therefore recommended that businesses established outside the UAE but managed and controlled from the UAE may analyse the tax implications to optimise tax expenses.