Who is Subject to Corporate Tax in UAE?

Hey there! In this blog, we’re going to break down who needs to pay corporate tax and who gets a pass.

We’ll explore which types of entities are taxed, what activities fall within the tax scope, and the main exemptions. We’ll also touch on how this applies to Free Zone businesses and Family Foundations.

Taxable Persons

In the world of corporate tax, those who need to pay are called Taxable Persons. These can be Resident Persons or Non-Resident Persons. Let’s dive into the specifics.

Who Needs to Pay Corporate Tax?

Corporate Tax in the UAE broadly applies to:

1. Juridical Persons: Entities like corporations incorporated in the UAE or foreign entities managed and controlled in the UAE.

2. Non-Resident Juridical Persons: Foreign entities with a Permanent Establishment in the UAE.

3. Non-Resident Persons with State Sourced Income: Individuals or entities earning income from the UAE.

4. Non-Resident Juridical Persons with a Nexus: Entities earning income from immovable property in the UAE.

5. Natural Persons: Individuals conducting business in the UAE with a turnover over AED 1,000,000 per year.

Resident Taxable Persons

Resident Juridical Persons

A juridical person is any entity with its own legal personality separate from its owners. This includes entities incorporated in the UAE or those established under UAE laws. It also covers foreign entities effectively managed in the UAE.

Examples:

 - LLCs

 - PJSCs

 - Foundations

 - Trusts

 - Branches of these entities in the UAE are considered extensions, not separate entities.

Effective Management and Control

If a foreign entity is effectively managed and controlled from the UAE, it’s considered a resident for tax purposes. This means the key management and commercial decisions are made in the UAE.

Example:

C Ltd: A foreign company managed by a UAE resident who makes all key decisions from the UAE. 

Despite holding board meetings abroad, C Ltd is effectively managed in the UAE.

Resident Natural Persons

Corporate tax for natural persons is based on their business activities in the UAE, not their residency status. It applies to individuals earning over AED 1,000,000 annually from business activities.

What’s Included:

Industrial, commercial, agricultural, vocational, professional, or service activities.

Any economic activity aimed at generating profit.

What’s Excluded:

 - Employment income

 - Personal investments

 - Real estate investments not conducted through a business license.

 - Non-Resident Taxable Persons

A non-resident is subject to corporate tax if they have a significant presence in the UAE through:

 - Permanent Establishment: A fixed place of business in the UAE, like an office or factory.

 - State Sourced Income: Income earned from within the UAE.

 - Income from Immovable Property: Earnings from real estate in the UAE.

Example:

A foreign company with a UAE office that concludes contracts locally.

Exemptions

Certain entities are exempt from corporate tax, including:

 - Government entities

 - Qualifying public benefit entities

Some Free Zone businesses Family foundations

These exemptions help support specific sectors and activities deemed beneficial to the public or strategic interests of the UAE.

Practical Case Study: Company Z

Scenario:

Company Z: A UAE-based trading company.

Steps for Compliance:

1. Identify as a Taxable Person: Determine if they fall under resident or non-resident taxable persons.

2. Maintain Records: Keep financial records for 7 years.

3. Register for Tax: Ensure registration with the FTA.

4. Prepare Financial Statements: Follow applicable accounting standards.

5. File and Pay Tax: Submit returns and pay due taxes within the prescribed timelines.

By following these steps, Company Z stays compliant and avoids penalties.

Why It Matters

Understanding who is subject to corporate tax helps ensure your business meets its obligations and avoids penalties. It also allows for better financial planning and compliance with UAE laws.

Need Help?

Feeling overwhelmed? Fastlane is here to help. We’re corporate tax experts ready to guide you through the complexities, ensuring your business stays on track and compliant.