Impact of Proposed UAE Corporate Tax for Individuals

There is no denying the fact that the UAE continues to attract thousands of professionals each year looking for exciting occupational opportunities. A series of forward-looking and progressive measures have been taken by the government to strengthen the UAE’s position as a preferred destination for living, working, and investing - be it through new visa schemes such as the Golden Visa or Freelancers Visa or the establishment of a creative zone in Dubai,  the ‘Project of the 50’ and many more. Such reforms will drive a significant rise in the UAE’s working population.

With the introduction of the UAE corporate tax regime with effect from FY starting on or after 1 June 2023, it is important to evaluate the applicability of the UAE corporate tax for individuals going forward.

Applicability of the UAE Corporate Tax for individuals:

Any employment income or any personal income earned by both UAE National and any Foreign National such as dividends, rental income from UAE real estate investments, salary income, and other investment income earned in a personal capacity will not be subject to tax under the proposed UAE corporate tax regime.

The PCD issued by the MOF further provides that individuals engaged in a business or commercial activity in the UAE or operating sole establishments or proprietorships in the UAE under any commercial license or trade permit will be subject to corporate tax in the UAE.

Whether an individual is engaged in a business would generally depend on if the activity requires the individual to obtain a commercial/ business license or equivalent permit(s) to carry out such activity in the UAE.

Individual partners in an unincorporated partnership that conducts business in the UAE will also be subject to corporate tax under the UAE corporate tax regime on the income earned through their partnership firm, though the firm itself shall not be subject to corporate tax in the UAE.

Against this backdrop, the following scenarios need a thorough assessment and evaluation:

1. Family Offices: Income from UAE real estate and other investments that are held through a private or family trust on behalf of beneficiaries that are natural persons shall not fall within the scope of the proposed corporate tax

2. Capital gains income: In our view, considering the intent of the PCD, any income earned by an individual in their personal capacities such as capital gains on the sale of real estate property or capital gains on the sale of shares or debentures should be exempt from corporate tax in the UAE.

3. Freelance professionals: Individuals working in the UAE under a freelance visa would need to evaluate whether the activity being undertaken requires any other commercial or trade license from a competent authority or not. As per the Frequently Asked Questions (FAQs) released by the MoF earlier this year, UAE corporate tax will generally apply to income earned from activities conducted under a freelance license/permit.

4. Short-term rentals or vacation homes: The short-term rental industry in the UAE is booming. Under this model, individuals rent out their properties in the UAE for a shorter term (monthly or weekly, or even daily basis) as vacation homes. Given that properties that are to be rented out on a short-term basis require a permit and approval from the Department of Economy and Tourism before being leased to tenants, such income from short-term rentals is likely to be subject to Corporate Tax in UAE but it remains to be seen as to how the final corporate tax legislation deals with taxability of such income, and bring any implications of  UAE corporate tax for individuals in that context.

5. Income from commercial leasing: Currently the PCD does not distinguish between properties used for residential use and those used for commercial purposes such as offices, shops, etc. It would, however, need to be assessed whether renting out properties meant for commercial use needs any specific license from any competent authority, in which case, such income would also be subject to corporate tax.

While individuals have been generally kept out of the purview of the UAE corporate tax regime, it would need a careful evaluation on whether the activities being undertaken by individuals need a business or commercial license (or equivalent) to undertake such activity in the country, in which case UAE corporate tax for individuals would apply on the income so earned.

The much-awaited Federal Decree- Law 47 of 2022 on "Taxation of Corporations and Businesses" is issued!  Click to know more about Corporate Tax Law

Also Read:- Impact of Proposed Corporate Tax in UAE for Companies

Impact of Proposed Corporate Tax in UAE for Foreign Companies

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Article contributed by:

Corporate Tax team - UAE

MBG Corporate Services

Disclaimer

The information contained in this document is for general information purposes only. We make no representation or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the document or the information provided therein. We reserve the copyright of this document and hence, do not allow anyone to sell, re-publish or re-distribute the document or derivatives thereof.

This document is prepared on perusal of the public consultation document issued by the Ministry of Finance, UAE on 28th April 2022 which does not represent the final legislation; hence, it should not be relied upon for making individual or business decisions.