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Corporate Tax on Sole Proprietorships in the UAE: Common Misconceptions Debunked
tax

Corporate Tax on Sole Proprietorships in the UAE: Common Misconceptions Debunked 

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The introduction of Corporate Tax (CT) in the UAE has led to several questions, especially concerning sole proprietorships and sole establishments. Many business owners remain unclear about how these structures are treated under the new tax regime.  At Maats Auditors and Consultants, we aim to clarify these misconceptions and provide accurate guidance to ensure compliance with UAE tax laws.  Sole Proprietorships and Sole Establishments  A sole proprietorship (or sole establishment) is a business owned and operated by a single natural person in their own name. Unlike a company with a separate legal identity, the owner and the business are considered the same legal entity under UAE law.  Key Characteristics of Sole Proprietorships:  This distinction is crucial because it affects how income, expenses, and liabilities are treated under the UAE’s Corporate Tax regime.  Common Misconceptions About Sole Proprietorships and Corporate Tax  Misconception 1: Sole Proprietorships Are Automatically Exempt from Corporate Tax  Reality: While sole proprietorships are not separate legal entities, they are not automatically exempt from Corporate Tax.  Misconception 2: Real Estate Income from Sole Proprietorships Is Always Tax-Free  Reality: The UAE’s Corporate Tax law excludes income from real estate investment (such as rental income from owned properties) from taxation. However, if a sole proprietorship actively manages real estate under a business license, the income may be taxable.  Example from the UAE CT Law:  A natural person owns multiple properties in Dubai and Abu Dhabi and sets up a sole establishment with a property management license. Since the business is actively managing the properties (rather than passively earning rental income), the revenue may be subject to Corporate Tax if the annual turnover exceeds AED 1 million.  Misconception 3: Business Expenses Are Always Deductible for Sole Proprietorships  Reality: If a sole proprietorship earns tax-exempt income (such as passive real estate rental income), related expenses cannot be deducted for Corporate Tax purposes.  Misconception 4: Sole Proprietorships Must File Separate Tax Returns  Reality: Since the owner and the business are the same legal entity, the individual reports business income in their personal tax return (if required). However, if the turnover exceeds AED 1 million, the owner must register for Corporate Tax and file accordingly.  Key Corporate Tax Implications for Sole Proprietorships  1. Tax Registration Requirements  If the annual turnover exceeds AED 1 million, the business owner is required to register for Corporate Tax in the UAE. Freelancers and small business owners should closely monitor their revenue to ensure they accurately determine their tax obligations and remain compliant with regulatory requirements. 2. Real Estate Income Considerations  Passive rental income earned without a business license is exempt from Corporate Tax in the UAE. However, if a property owner is actively managing real estate and holds a trade license for this activity, the income may be considered taxable under Corporate Tax regulations. 3. Expense Deductions  Only expenses directly related to taxable income streams are eligible for deduction under Corporate Tax regulations. Costs associated with exempt income, such as those linked to real estate investments, cannot be claimed as deductions. 4. Unlimited Liability Risk  Since the owner is personally liable for business debts, tax liabilities also fall on the individual. Proper financial planning and compliance are essential.  How Maats Auditors Can Help  As a trusted financial advisory firm, Maats Auditors and Consultants enhances client services by conducting automation audits to identify manual processes that can be streamlined for greater efficiency.  Comprehensive training and ongoing support are provided to ensure teams can effectively adopt and utilize new technologies. Additionally, Maats ensures full compliance by automating key functions such as VAT filings, financial reporting, and maintaining audit trails in line with regulatory requirements. Conclusion  Sole proprietorships in the UAE are not exempt from Corporate Tax by default. Owners must assess their turnover, income sources, and licensing structure to determine tax obligations. Misunderstandings about real estate income, expense deductions, and registration thresholds can lead to non-compliance risks.  Maats Auditors and Consultants is here to guide you through the UAE’s Corporate Tax landscape. Contact us today for expert advice tailored to your business needs. 

corporate tax in UAE for natural persons
Corporate Tax

Corporate Tax In UAE For Natural Persons

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The provisions of the Corporate Tax Law shall apply to Tax Periods commencing on or after 1 June 2023.  Where a juridical person has more than one License, the License with the earliest issuance date shall be used. Resident Person • Non-Resident Person with a Permanent Establishment in the UAE • Business Activity deriving a total Turnover in excess of AED 1 million ( Excludes turnover derived from Wage, Personal Investment, Real Estate Investment ) Scope of Tax A natural person can be either a Resident Person or a Non-Resident Person. natural person residing in the UAE and conducts Business  in the UAE, is considered to be a Resident Person and, therefore, a Taxable Person for Corporate Tax purposes. When a natural person resides outside the UAE, that is having a home in another country, becomes a Resident Person for Corporate Tax purposes if conducts Business or Business Activities in the UAE On the other hand, in general terms, where a natural person is considered a Non- Resident Person, such natural person would only be subject to tax from their Business or Business Activities conducted within the UAE Residence for Corporate Tax purposes is not determined by physical residence in the UAE, whether by virtue of citizenship or a residency visa. Implication of Double Taxation Agreement If the natural person has not invoked the application of a Double Taxation Agreement, any natural person conducting Business in the UAE will be a Resident Person for purposes of the Corporate Tax Law. By implication, in the absence of a Double Taxation Agreement, a natural person who has a Permanent Establishment in the UAE by virtue of a fixed place through which carries on Business in the UAE, will be treated as a Resident Person for UAE Corporate Tax purposes. Where a natural person resides in a country that has an applicable Double Taxation Agreement with the UAE, and as a result of the application of that Double Taxation Agreement the natural person is not resident in the UAE but has a Permanent Establishment in the UAE, he/she will be a Non-Resident Person and taxable in the UAE in relation to his/her Permanent Establishment. Where no Double Taxation Agreement is applicable to the position of the natural person, a natural person cannot be a Non- Resident with a Permanent Establishment in the UAE. Instead, he/she would be considered as a Resident Person Turnover Business or Business Activities conducted by a natural person in the UAE are subject to Corporate Tax if the total Turnover from such Business exceeds AED 1 million within a calendar year. Total Turnover is the sum of all the income before any costs are deducted. Exclusions from Corporate Tax For a natural person, income from the following categories is not considered as arising from Business and is disregarded when determining the total Turnover and not subject to Corporate Tax, regardless of the amount: 1.Wage  Wage, received from the employer is not subject to Corporate Tax. Thus, salary or other form of remuneration received by a natural person as an employee from employer would not fall within the scope of Corporate Tax. 2.Personal Investment income Personal Investment income is not subject to Corporate Tax when derived by a natural person from investment activity conducted in personal capacity that is neither conducted through a Licence or requiring a Licence from a Licensing Authority, nor considered as a commercial business 3.Real Estate Investment income Real Estate Investment income is not subject to Corporate Tax when derived by a natural person if it is related to the selling, leasing, sub-leasing, and renting of land or real estate property in the UAE that is not conducted through a Licence nor requiring a Licence from a Licensing Authority.  Calculation of Turnover  A natural person’s registration obligations for Corporate Tax start as soon as the total Turnover exceeds the AED 1 million threshold. The natural person can subsequently elect to apply Small Business Relief in the relevant Tax Period, where the relevant conditions are met.  Tax Period  The Tax Period of a natural person who conducts a Business or Business Activity that is subject to Corporate Tax, shall be from 1 January until 31 December. The first potential Tax Period for a natural person is the 2024 Gregorian calendar year.  The Tax Registration process for Corporate Tax An application to register for Corporate Tax can be made on the EmaraTax portal. A natural person who is already registered for Value Added Tax or Excise Tax can use their existing login details. A natural person that has not previously registered with the FTA will be required to create new login credentials the first time he/she accesses the EmaraTax portal. Key information and documentation requirements for Tax Registration purposes A natural person who is required to register for Corporate Tax must submit a registration application along with the relevant supporting documentation to the FTA. Contact details – telephone number, physical address and email address Passport (a copy of the photo page to be uploaded with the application) Emirates ID (a copy of the front and back of the Emirates ID to be uploaded with the application) Sole establishment details and Licence details in relation to the Business and Business Activities conducted, if any (a copy of each to be uploaded with the application) Value Added Tax, or Excise Tax registration details ( Not Mandatory) Bank account details (Not Mandatory) Once registered, he/she will be issued with a separate Tax Registration Number for Corporate Tax purposes. This Tax Registration Number will be similar to their existing Tax Registration Number for Value Added Tax and/or Excise Tax, but the last digit will be different from their Tax Registration Number(s) for Value Added Tax and/or Excise Tax. Persons not registered for Value Added Tax and Excise Tax Natural persons who are not subject to Value Added Tax or Excise Tax but are within the scope of the Corporate Tax will be required to register for Corporate Tax purposes. Obligations after

corporate tax services in Dubai
Corporate Tax

Introduction to Corporate Tax – 2023

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Corporate Tax in Dubai from 1st June 2023 The UAE government issued a new decree regarding the implementation of Corporate Tax services in Dubai on 09 December 2022. The Corporate Tax in Dubai Law is effective for financial years starting on or after 1 June 2023. The new tax regime is introduced to further strengthen UAE’s position as a global business hub and achieve its strategic objectives to aid development and transformation. Also, the corporate tax law intends to meet international standards of the tax system and avoid tax evasion and harmful tax practices. It is essential for businesses in UAE to understand the concepts of the updated tax policies. What Is Corporate Tax? Corporate tax in Dubai is a form of direct tax imposed on the profit or net income of corporations and other business entities in the UAE which is commonly called Corporate Income Tax or Business Profits Tax. Corporate Tax in Dubai requires businesses to pay a certain percentage of their profit as taxes. Who Should Pay Corporate Tax? UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE Natural persons who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course Non-resident juridical persons that have a Permanent Establishment in the UAE All businesses with a taxable profit of more than 375,000 AED are subjected to corporate tax. The rate of corporate tax is 9% of the net profit made by the businesses. UAE has intended to support small businesses and start-ups with a ‘0’ % tax if the net profit is up to 3,75,000 AED. Corporate Tax Exemptions In UAE Businesses that exceed the profit threshold of 3,75,000 AED are expected to pay corporate tax in UAE. However, certain types of business or income are exempt from corporate tax requirements. Individuals are not subject to UAE corporate tax. Personal income is exempted from corporate tax Corporate does not apply to foreign investors who do not conduct business activities in UAE Free zone businesses that comply with the regulatory requirements will continue to enjoy corporate tax incentives Capital gains and dividend income received by UAE companies from their qualifying shareholdings Profits from qualifying intragroup transactions and restructurings Corporate Tax in Dubai Rates As per the Ministry of Finance, the percentage of corporate tax is as follows: 0% for taxable income up to AED 375,000 9% for taxable income above AED 375,000 0% for qualifying income that meets the qualifying free zone income 9% for taxable income that does not meet the qualifying income definition MAATS Services in Corporate Tax Since the announcement, corporate tax services in Dubai has created a little hassle among businesses and professionals. MAATS, the best accounting firm in Dubai helps businesses comply with the new corporate tax system by providing support and guidance to smoothly adapt to the updated tax policies. We have professional services in corporate tax registration, corporate tax planning, corporate tax advisory services, and corporate tax accounting. Our team of expert and experienced tax consultants offers regular updates, clears all queries, and takes care of any complications while you focus on your business.

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