The Corporate Tax Law (Federal Decree-Law No. 47 of 2022), which was passed on October 3, 2022, and published in the UAE's Official Gazette on October 10, 2022, introduces federal taxation on corporations and corporate earnings. As of June 1, 2023, this will significantly alter the tax landscape in the United Arab Emirates. Brief explanations of the prerequisites for registering natural persons for company tax, including the deregistration process and registration criteria, are provided in the guide. It is a priceless resource for comprehending the UAE's corporate tax structure.
Understanding Corporate Tax Registration: Your Guide to Compliance in the UAE
Individuals decide whether they are subject to the UAE Corporate Tax system and must pay taxes. Individuals falling under this category, that is, citizens or foreign nationals with a permanent place of business in the United Arab Emirates need to register for corporate tax. Furthermore, anyone operating a business that brings in more than AED 1 million must register; this excludes income from wages, real estate investments, and personal usage. This registration allows you to comply with regulations including filing a company tax return and paying any past-due taxes. It works as a form of self-evaluation in which individuals analyze their tax obligations based on pre-established standards.
Understanding Taxable Persons for Corporate Tax in the UAE
A Taxable Person for Corporate Tax in the UAE can be either a natural person or a juridical person, with the exception of Non-Resident Persons with only State Sourced Income and no Permanent Establishment in the UAE.
The Corporate Tax Law follows a self-assessment regime, requiring natural persons falling within its scope to register for Corporate Tax Services if specific criteria are met. Residents conducting business activities in the UAE are considered Taxable Persons.
Non-residents can also be Taxable Persons if they have a Permanent Establishment in the UAE or derive State Sourced Income. The determination involves factors such as residence, business activities, and the application of Double Taxation Agreements.
State Sourced Income for Non-Resident Persons may be subject to Withholding Tax (currently at 0%). If a natural person's total Turnover exceeds AED 1 million, Corporate Tax registration is mandatory.
Defining Business and Business Activity
What qualifies as a business and what constitutes a business activity for the purposes of corporate tax is defined in great detail by the UAE's Corporate Tax Law. Determining a company's corporate tax liability mostly depends on its business activity, which is defined as all transactions and operations. Conversely, business is defined as any independently undertaken, continuously carried out activity that falls under any of the following categories: commercial, industrial, agricultural, vocational, professional, service, or excavation.
Business Scope: Ongoing and Independent
The term "ongoing" does not preclude transient operations. If a short-term business venture involves transactions or operations, it may be subject to corporate tax. Because the law places more emphasis on a business's "conduct" than its "carrying on," transient economic activity may be taken into account for corporate tax purposes.
Taxable Income Inclusions
Earnings from sources both inside and outside the UAE that are connected to a natural person's conducted business are included in their Taxable Income if the person conducts business or business activity in the UAE. A crucial consideration in establishing this connection is the geographical location of those involved in contracting, business development, or production.
Corporate Tax Registration Requirements and Applicability
If a natural person's business or business activities in the UAE generate more than AED 1 million in total turnover in a Gregorian calendar year, they are liable to corporate tax. Turnover, which is the gross income less the amount of expenses subtracted, is a key indicator of whether corporate tax applies. A natural person must register for corporate tax if they satisfy these requirements.
Corporate Tax Exemptions in the UAE
Wage, Personal Investment Income, and Real Estate Investment Income are among the income categories that are free from corporate tax. It is not necessary for natural persons to file for corporate tax if they are involved in activities that generate such income without conducting business or business activities in the United Arab Emirates.
Natural persons can manage Corporate Tax Exemptions & liabilities more skillfully by being aware of these complexities.
UAE natural persons enjoy Corporate Tax exemptions:
- Wage Exemption: Employee compensation, cash or kind, is untaxed.
- Income from Personal Investments: Profits exempt if personal investments are not commercial.
- Real Estate Investment Income: Untaxed for land or real estate transactions not requiring a license.
- Determining Tax Liability: No Corporate Tax for total turnover < AED 1 million. Compliance ensures informed decisions.
Essentials of the Total Turnover Calculation
Analyzing a natural person's corporate tax involves assessing total turnover from all UAE-based businesses in a Gregorian year. Notably, income like wages, personal investments, and real estate is excluded. While both Cash and Accrual Basis are acceptable, Accrual is recommended.
Simplified Tax Period: The Gregorian Calendar Year
When negotiating the consequences of Corporate Tax, natural persons should be aware that the Tax Period, which runs from January 1 to December 31, aligns with the Gregorian calendar. By December 31, 2024, the AED 1 million threshold evaluation must be completed for people who start doing business in that year. In the event that registration is successful, the tax return must be filed by September 30, 2025.
Corporate Tax Registration Made Easy
Using the EmaraTax platform, the Corporate Tax registration process is simplified. Current login credentials are available to Value Added Tax or Excise Tax registrants. New users must set up their credentials. More advice is available through an easy-to-use handbook on the FTA website and a helpdesk at 80082923 during business hours.
Easy Tax Registration Procedure
An application and the necessary documents are submitted to the FTA by a natural person seeking Corporate Tax registration. After reviewing, the FTA decides whether to accept or deny the application. A Tax Registration Number is provided following approval. The FTA aims to process applications in 20 business days or less, and it will reply in the same amount of time if more information is needed. A fresh application is necessary if the requested information is not submitted within the allotted time.
Key Information and Documents for Tax Registration
Ensure a seamless Tax Registration process by having the following information and documents ready:
- Contact Details.
- Emirates ID
- Sole Establishment Details
- Tax Registration Details
- Bank Account Details
Prepare and upload these essentials for a swift and efficient Tax Registration process.
Procedural Aspects for Corporate Tax Registration
1. Already Registered for Excise and Value Added Tax
If a natural person is registered for excise tax and/or VAT registration, they need to register for corporate tax separately if it falls under their purview. The Corporate Tax Registration Number will have a unique last digit and will look similar to the current one.
2. Tax Agents for Corporate Tax
As long as they are registered with the FTA, tax agents who handle corporate tax obligations—who may already represent people for VAT and/or Excise Tax—may carry on in this capacity.
3. Not Registered for VAT and Excise Tax
Natural persons must register for corporate tax purposes even though they are exempt from VAT and excise tax.
Following Corporate Tax Registration Requirements
After registering for corporate tax, a natural person has certain requirements to meet:
- Tax Return Filing and Payment: Within nine months of the end of the tax period, file tax returns and pay corporate tax.
- Record Retention: For seven years following the relevant Tax Period, keep all supporting records and papers for their tax position.
- Up to Date Registration Data: To avoid fines, make sure all registration information is up to date and notify the FTA of any changes within 20 business days.
- FTA's Power to Register: Based on the information at hand, the FTA may register a natural person for corporate tax if it determines that they should have done so but haven't, with effect from the relevant date. Such decisions may be appealed by natural persons.
Essentials of Deregistration
Deregistration is required when a natural person is no longer liable to corporate tax; this usually happens when business or business activity ends. For all of their operations, a single Tax Registration Number is provided. Deregistration only takes effect when all activities are completed. The application must to be submitted within three months of the cessation, typically by the natural person or their legal representative. Submission of all necessary tax returns, payment of corporate tax, and payment of penalties are prerequisites for approval. Even if Turnover is less than AED 1 million, the individual's registration is kept, and if relevant, only a "nil" tax return is needed. If any of the requirements are not fulfilled or if a new activity begins within the same Tax Period as the application, the deregistration request is denied.
Corporate Tax and Death: Meeting Obligations
A natural person loses their status as a Taxable Person upon death. Prior to heirs receiving their share of the estate, corporate tax bills are addressed. Unless the FTA issues a clearing certificate, heirs are liable for post-distribution tax obligations.
Your Journey Simplified with BMS Auditing
In the evolving landscape of UAE's Corporate Tax, BMS Auditing stands as your trusted guide. From simplifying registration to ensuring compliance, we navigate every aspect seamlessly. With expertise in the new Corporate Tax Law and the user-friendly EmaraTax platform, we make the journey effortless. Trust BMS Auditing for a streamlined approach, informed decisions, and sustained financial success. Compliance is our commitment, and your prosperity is our mission. Choose BMS Auditing – where complexities are simplified, and success is tailored for you.