In a progressive move, the UAE government has recently initiated a 9% corporate tax. However, a wave of uncertainty has swept across individuals and business owners, yet again, as new updates keep getting rolled out.
An important question on everyone’s lips is “Will this new tax will extend to personal income and investments?” In fact, The Ministry of Finance, addressing these concerns, has clarified that the corporate tax applies solely to businesses meeting specific criteria.
Under the UAE corporate tax law, companies whose profits exceed Dh 375,000 will only be subject to corporate tax.
This article, by our expert in-house UAE corporate tax consultants, seeks to assuage these fears by clarifying that personal income and investments remain untaxed under this law.
What is the Qualifying Criteria for Personal Income & Investments for tax eligibility?
To start with, we must recognize that the criteria for this tax application include businesses that achieve an annual turnover of Dh1 million or more and those licensed to operate within the UAE.
So the good news is that personal income and investments are not included within the purview of this tax.
This exemption extends to income from employment, investments, and real estate, ensuring individuals’ earnings remain untouched – which is a major relief!
What is Personal Income?
Personal Income as a whole, has yet to be clearly defined in the UAE law; however, a universally accepted definition of personal income includes the individual’s total earnings from wages, investment interest, and other sources. It is the sum of all the incomes actually received by all the individuals or household during a given period.
Personal income typically includes:
Wages and Salaries
This is the income from employment that individuals receive in exchange for providing labour or services to an employer.
This is income received from renting out property, such as real estate or vehicles.
This includes dividends from stocks, interest from bonds, capital gains from selling investments, and any other income generated from various types of investments.
Pension and Retirement Income
For retired individuals, personal income can include Social Security benefits, pensions, and income from retirement savings accounts.
This can include unemployment benefits, welfare payments, and other types of government assistance.
This might include alimony, child support, income from trusts or estates, and more.
It’s important to note that not all of these sources of income are taxed equally in many jurisdictions. For example, some forms of investment income may be subject to lower tax rates than wage income in some countries. Tax laws are complex.
What does the latest update say about taxation on Personal Income?
According to the specific update shared in the UAE Cabinet Decision No. (49) of 2023 on 8th May, 2023, the personal income and investments which are exempt from corporate tax include:
- Rental income
- Capital gains from the sale of assets
And, it is important to wait until the rollout of the new Corporate Tax UAE 2023 is complete. In the meantime, you can always consult an expert tax advisor to understand your personal income situation in the UAE.
Why do single business owners need not worry?
This can be best illustrated using examples. For instance, as a UAE resident if you are single business owner operating anywhere in the country, and your Annual Turnover is exceeding Dh1 million, your income would in that case be subject to corporate tax.
However, on the other hand, there is exemption for you, if you have made earnings from rental properties and personal investments exceeding Dh1 million.
You must still proceed with caution because there could be major/minor implications related to compliance to be eligible for such exemptions, regardless of your size of operations.
Therefore, it is critical that you consult with an accountant or tax advisor such as those at Horizon Biz Consultancy if you have any queries about the applicability of corporate tax on your personal income or investments, especially, if you are a Small Medium Business Owner.
Why do individuals not need to worry?
Based on the UAE Cabinet Decision No. (49) of 2023, “For The natural person that is not conducting a Business or Business Activities subject to Corporate Tax in accordance with this Article shall not be required to register for Corporate Tax.”
In fact, our co-founder, CA Vibha Malik Modi recently explained the effect of this decision and its implications on residents and non-residents operating businesses or engaging in commercial activities in the UAE.
Image from CA Vibha Malik Modi’s LinkedIn
What else should you know about getting prepared for Corporate Tax Compliance?
If you are not sure how to register for Corporate Tax UAE 2023, you can check out this step by step guide on navigating this terrain here.
Still not convinced, then as a business owner you need to be aware of the exemptions you can claim for your Small Medium Business. In fact, we have curated the only list of corporate tax exemptions you will need to see to make sure you get to claim your exemptions. To make matters even easier, there is a Small Business Relief Mandate that will ease your woes.
Still confused? Ask for Horizon Biz Consultancy Dubai for Free Consultation
At Horizon Biz Consultancy, we stand ready to help businesses navigate this new terrain. As expert corporate tax consultants Dubai, we understand the intricacies of these changes and how they apply to your company. Don’t let the new tax laws become a source of worry – reach out to us, and we’ll help you simplify the complexities.