Frequently Asked Questions
Q1. When is an individual required to register for Corporate Tax?
Ans- An individual is required to register for Corporate Tax purposes only if the total turnover derived from their businesses or business activities exceeds AED 1 million in a Gregorian calendar year.
Q2. When can an individual be considered a taxable person for corporate tax purposes?
Ans- An individual can be considered a taxable person if he is a resident person conducting a business activity in the UAE or a non-resident person with a permanent establishment in the UAE, or if he derives state-sourced income or has nexus in the state. For the purposes of corporate tax, a branch in the state of a person shall be treated as the same taxable person.
Q3. How is the residential status of an individual determined?
Ans- As per the UAE CT, when an Individual resides in the UAE and conducts business or business activities in UAE, he is considered as a UAE resident person.
However, where an individual resides in a country that has an applicable DTAA with the UAE and as a result of application of DTAA individual is not considered as a resident in UAE but then carries out business activity in the UAE then existence of Permanent Establishment (PE) in UAE may be applicable and the individual may become taxable in UAE in relation to his PE.
Where there is no DTAA between UAE and another country then Individual shall be considered as resident in UAE when he resides outside the UAE and conducts business or business activity in UAE.
Q4. What are the Corporate Tax rates for individuals?
Ans- When the turnover derived by an individual in a Gregorian calendar year exceeds AED 1 million, the taxable income of the individual will be subject to corporate tax at the following rates:
– 0% on the portion of the taxable income not exceeding AED 375,000.
– 9% on the portion of the taxable income that exceeds AED 375,000.
However, he can further take advantage of the Small Business Relief Exemption in case the Business Turnover does not exceed AED 3 million.
Q5. Can an individual elect for the application of the Small Business Relief?
Ans- Yes, a resident person may elect for the application of Small Business Relief provided that the revenue for the relevant tax period and previous tax periods does not exceed AED 3 million in each tax period that end on or before 31 December 2026 and meets the conditions in Ministerial Decision No. 73 of 2023.
Q6. My revenue for the current tax period is less than AED 3 million, but it was more than AED 3 million in my last tax period. Am I eligible for Small Business Relief?
Ans- No. Once your revenue exceeds AED 3 million in a tax period, you will no longer be eligible for Small Business Relief in the current or future tax periods.
Q7. My revenue is currently less than AED 3 million in the current tax period. However, I anticipate my total revenue will exceed AED 3 million by the end of this tax period. What do I need to do?
Ans- If your revenue exceeds AED 3 million in a tax period, you will no longer be eligible to elect for Small Business Relief when you file your corporate tax return for that period or subsequent periods. There is no need to notify the Federal Tax Authority if you expect your revenue to exceed AED 3 million for a tax period. You would need to ensure that you have kept adequate records to allow you to calculate your taxable income at the end of the tax period.
Q8. Is a non-resident eligible for Small Business Relief?
Ans- No, only a resident person is eligible for Small Business Relief.
Q9. What happens to tax losses that an individual has accrued in previous tax periods if they elect for Small Business Relief?
Ans- Tax losses accrued by a taxable person in a previous tax period prior to the taxable person claiming Small Business Relief can be carried forward so that these tax losses can be used in future periods where Small Business Relief has not been elected or does not apply.
Q10. What happens to excess interest expenditure that an individual has accrued in previous tax periods if they elect for Small Business Relief?
Ans- Excess interest expenditure accrued in a previous tax period prior to the taxable person claiming Small Business Relief can be carried forward so that the interest expenditure can be used in future periods where Small Business Relief does not apply. Any tax period that a taxable person claims Small Business Relief, and as such cannot use the excess interest expenditure, will still count towards the ’10-year’ carry forward period.
Q11. Can an individual still elect for Small Business Relief in the current tax period even if he did not elect for the relief in the prior periods?
Ans- Yes, as long as the revenue did not exceed AED 3 million in the previous tax periods, the individual will be able to elect for Small Business Relief for the current tax period provided all the relevant conditions are met.
Q12. Are transfer pricing provisions applicable when an individual has elected Small Business Relief?
Ans- An individual will be able to benefit from several compliance reliefs once he has elected Small Business Relief, in addition to being treated as having no taxable income. Therefore, he will not be required to file transfer pricing documentation. This includes both the requirements to file a transfer pricing information disclosure form together with a tax return and the requirement to maintain a master file and a local file. However, the individual must still comply with other relevant tax laws and regulations.
Q13. Can an individual be a free zone person?
Ans- No, an individual cannot be FZP.
Q14. Can individual benefit from Business Restructuring Relief?
Ans- Yes, an individual who wants to convert sole proprietorship into a company or incorporate can take the benefit from Business Restructuring Relief provided all the relevant conditions are met.
Q15. Will an individual’s employment income be subject to UAE Corporate Tax?
Ans- UAE Corporate Tax does not apply to the salary and wages derived by employees in consideration for their services under an employment contract, including all allowances and bonuses.
Q16. Will income earned by an individual from Bank deposits be subject to UAE Corporate Tax?
Ans- Interest and other Personal Investment and savings income earned by an individual in his personal capacity will not be subject to UAE Corporate Tax.
Q17. What is the definition of Personal Investment income?
Ans- Personal Investment income is income earned by an individual from investment activities conducted in his personal capacity including interest or dividends. It excludes income from a commercial business, or from activity conducted, or required to be conducted through a Licence from a Licensing Authority in the UAE.
Q18. What is the definition of Real Estate Investment income?
Ans- Real Estate Investment income is income earned by an individual from an investment activity related directly or indirectly to land or real estate property in the UAE, which is not conducted, or required to be conducted, through a Licence issued by a Licensing Authority in the UAE.
Q19. If an individual owns several commercial properties in his name, generating rental income above AED 1 million, will such activity still qualify for exclusion for Corporate Tax purposes?
Ans- Such activity will qualify for exclusion for Corporate Tax purposes, provided it is not conducted, or required to be conducted through a Licence.
Q20. What if an employee of a foreign employer is not able to establish when he can return to his original country of work due to an exceptional situation, would this create a UAE Permanent Establishment for the foreign employer?
Ans- The fact that the employee cannot determine when the employee can return to their original country of work does not create a UAE Permanent Establishment, provided that the employee does not have any intention to remain in the UAE upon the cessation of the exceptional situation. Furthermore, the employee should be able to prove that he does not have an intention to remain in the UAE if requested by the Federal Tax Authority.
Q21. What if an employee of a foreign employer works in the UAE under a virtual work residence visa, will this create a UAE Permanent Establishment for the foreign employer?
Ans- The employee’s presence in the UAE would not create a Permanent Establishment, as long as the employee’s activities performed in the UAE are not part of the core income-generating activity of the foreign employer (or its Related Parties) and the foreign employer does not derive income from the UAE, e.g. UAE-based customers.
Q22. How can an exceptional circumstance be reasonably predicted?
Ans- If a natural person decides to travel to the UAE and he is aware that he will not be able to return to their original place of work because of exceptional circumstances (e.g. long-term travel restrictions that were announced prior to the planned date of departure), such circumstance would be considered as a circumstance that could have been reasonably predicted.
Q23. Will the Investment in UAE real estate made by a foreign natural person be subject to Corporate Tax?
Ans- No, A foreign natural person who invests in real estate property in the UAE in his personal capacity without a Licence would generally not be Corporate Tax and related compliance obligations.
Q24. How does an individual prepare financial statements?
Ans- An individual who is a taxable person shall prepare financial statements in accordance with IFRS. However, where the Turnover does not exceed AED 50 million IFRS for SMEs may be applicable.
Q25. What is the applicable method of accounting for an individual?
Ans- An individual shall prepare financial statements on an accrual basis. However, he may prepare financial statements using Cash Basis of Accounting if the Turnover does not exceed AED 3 million or in exceptional circumstances pursuant to an application submitted to and approved by FTA.
Financial Statements shall be prepared on aggregation of all the business or business activities that are subject to Corporate Tax.
Q26. Will the General Interest Deduction Limitation Rule apply to an individual?
Ans- No, the General Interest Deduction Limitation Rule does not apply to an individual.
Q27. What are the Non- Deductible Expenditure Rules for individuals?
Ans- CT Law disallows deductions for certain types of expenditure. This includes a specific disallowance for amounts withdrawn from a business by an individual. For example, amounts withdrawn by individual from their sole proprietorship Business – even if described as Wage or salary – cannot be deducted in calculating the Taxable Income arising from that Business.
Q28. When an individual is required to prepare and maintain Audited financial statements for the purpose of Corporate Tax?
Ans- An individual being a Taxable person is required to Audit his financial statements where he is deriving Revenue exceeding AED 50 million during the relevant tax period.
Q29. What is the time limit to keep financial records for Corporate Tax purposes?
Ans- Financial records and documents should be kept for 7 years following the end of the relevant period.
Q30. What is the time limit to file a CT Return for an individual?
Ans- An individual who is a Taxable Person must file a CT Return to FTA within 9 months from the end of the relevant tax period. An individual should submit a single Tax Return for all their Businesses and Business Activities subject to Corporate Tax.