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Tax laws can be intimidating, but understanding them is essential for anyone doing business in the UAE. The new UAE corporate tax law is a significant development, and knowing whether you’re a “Taxable Person” is the first step to staying compliant. But don’t worry—this blog will walk you through the basics first.
What is a “Taxable Person”?
In the simplest terms, a “Taxable Person” is any individual or entity subject to corporate tax in the UAE. But, as you might guess, it’s not quite that straightforward. The law divides it into two main categories: Resident and Non-Resident Persons. Let’s dive into what each means.
Resident Person: Are You One?
If you’re a “Resident Person,” you’re liable to pay corporate tax on your taxable income, both from within the UAE and outside it. But how do you know if you fall into this category?
- Juridical Person: This includes businesses like companies, organizations, or any legal entity established under UAE law. Even if you’re operating in a Free Zone, which usually enjoys tax benefits, you’re still considered a Resident Person.
- Foreign Entities: If you’re a company set up outside the UAE but managed and controlled from within the UAE, you also qualify as a Resident Person.
- Natural Persons: Simply put, if you’re an individual doing business in the UAE, you’re a Resident Person. It doesn’t matter whether you’re a local or an expat; if you’re making money through a business here, this applies to you.
- Other Entities: The Cabinet, upon suggestion from the Minister, can decide to include different types of entities as Resident Persons. So, keep an eye out for any new regulations!
Non-Resident Person: Are You Taxable?
Now, what if you’re not a Resident Person? You could still be subject to corporate tax if you fall into the Non-Resident Person category. This includes:
- Permanent Establishment: If you’re a foreign entity with a fixed place of business in the UAE—like a branch office, factory, or workshop—you’re considered a Non-Resident Person.
- State Sourced Income: Even if you don’t have a permanent place of business, you could still owe taxes on income generated within the UAE. This could be from contracts, selling goods, or providing services within the country.
- Nexus in the State: If the government decides you have enough of a connection to the UAE—maybe through regular business dealings or partnerships—you could be taxed as a Non-Resident Person.
The Corporate Tax Base: Where Does Your Income Come From?
Once you know whether you’re a Resident or Non-Resident Person, the next step is understanding how your taxable income is calculated under the UAE Corporate Tax Law. Here’s a basic breakdown:
For Resident Persons
If you’re a juridical person (a company, for example), you’re taxed on all your income, no matter where it’s earned. If you’re an individual (natural person) conducting business, only your business-related income is taxed.
For Non-Resident Persons
You’re only taxed on the income related to your UAE activities—be it from a permanent establishment, state-sourced income, or other connections determined by the Cabinet.
What Qualifies as “State-Sourced Income”?
State-Sourced Income is a crucial term in this law. It includes income from:
- Sales of goods within the UAE
- Services provided within or benefiting the UAE
- Contracts partially or fully performed in the UAE
- Movable or immovable property located in the UAE
- Intellectual property used within the UAE
- Interest from loans secured in the UAE or from Resident Persons
If any of these apply to you, then your income is considered State Sourced, and you’re liable to pay corporate tax on it.
Whether you’re a Resident Person with worldwide income or a Non-Resident Person with UAE-based activities, the law outlines specific scenarios where corporate tax applies.
Conclusion
So, take the time to determine where you fall in this framework and adjust your business practices accordingly. For further guidance on UAE corporate tax law, contact top law firms in Dubai or lawyers in Dubai who can help you to be compliant.