If the individual engages in a business activity that requires a license from the relevant authorities, the individual would be required to take the permit, and the individual’s UAE source income would be subject to corporation tax
Individuals can engage in certain activities in the UAE without obtaining a business license/permit, and such personal income would not be subject to corporate tax. — File photo
Persons subject to corporation tax (IC) can be classified as natural persons and legal persons. Natural persons fulfilling the criteria would fall under the scope of the CT, and similarly, legal persons fulfilling the specific conditions would be subject to the CT. On the other hand, natural and legal persons who do not meet the criteria would be exempt from corporate tax. In this article, we have covered the proposed treatment of CT on natural persons and legal persons.
Application of CT on the natural person:
The application of CT on the individual depends on the activity in which the individual is involved. For example, some activities conducted in the UAE require a license/permit from the respective authorities, while others do not. If the individual conducts a business activity that requires a license from the relevant authorities, the individual would be required to take the permit, and the individual’s UAE source income would be subject to CT. For example, income from sole proprietorships, sole proprietorships and income of individual partners of an unincorporated partnership that carries on business in the UAE and where the liability of any partner is unlimited.
Individuals can conduct certain activities in the UAE without obtaining a business license/permit, and such income of individuals would not be subject to the TC. For example, employment income from individuals, dividend income, rental income from investment in property, and other investment income.
If investments in real estate and other areas are held through a private or family trust in the name of individual beneficiaries, the trust would be subject to the same CT treatment as an individual. If individual family members own the property(ies), they can create a trust and transfer all of their properties under the trust. The trust would manage all of these properties on behalf of the people who would be the beneficiaries of the income. This trust income will not be subject to CIT.
Application of the TC on the legal person:
Legal persons can be categorized as legal persons like Limited Liability Companies (LLC), Public Joint Stock Companies (PJSC), Private Joint Stock Companies, etc. and unincorporated persons such as partnerships, joint ventures (JVs) and associations of persons (AoP). Legal persons can be incorporated in the UAE or outside the UAE. If the legal persons are incorporated in the UAE, their worldwide income will be subject to CT, and if the companies are incorporated outside the UAE, their income will nevertheless be subject to CT in the UAE if these companies:
• are controlled and managed in the UAE (worldwide income will be subject to CIT).
• have a permanent establishment in the UAE (UAE source income will be subject to CT)
• earn any UAE source income (UAE source income will be subject to CT)
Like legal persons, unincorporated persons such as partnerships, JVs and AoPs can be in the UAE or outside the UAE. If these are in the UAE, companies would be required to assess whether their partners have limited or unlimited liability. If one of the partners has unlimited liability, these entities are said to be “transparent” and their income would be subject to corporate tax in the hands of the partners or members. This means that these entities will not be subject to IS but their net taxable income will be subject to IS in the hands of the partners or members. On the other hand, where the liability of all partners is limited, such partnerships will be treated as a company incorporated in the UAE.
If the partners or members live in the UAE and the unincorporated persons are located outside the UAE, some countries may treat them as “transparent” entities and others may treat them as a corporation. These unincorporated non-residents will have the same CT treatment in the UAE as they will have in their respective countries.
Companies and individuals are required to assess their status and prepare for CT accordingly.
Mahar Afzal is Managing Partner at Kress Cooper Management Consultants. The above is not an official but personal opinion of the author. For any questions/clarifications, please write to him at [email protected]