19 May 2023

MoF releases Guidance on categories of Business or Business Activities conducted by a Natural Person that will be subject to Corporate Tax

Authored by: Theunis Claassen

Following last year’s release of the Federal Decree-Law No. 47 of 2022 (the CT Law), Corporate Tax is set to commence for financial years starting on or after 1 June 2023. In anticipation of this commencement date a number of Ministerial and Cabinet Decisions have been released to provide further guidance on the application of the CT Law. This newsflash briefly considers a recent Ministerial Decision in relation to the categories of Business or Business Activities conducted by a natural person that will be subject to Corporate Tax.

Taxation of Natural Persons

In terms of Article 11 of the CT Law, Corporate Tax shall be imposed on a Taxable Person, which includes a natural person who conducts a Business or Business Activity in the State. Article 11(6) further empowers the Cabinet to issue a decision specifying the specific categories of Business or Business Activity conducted by a natural person that shall be subject to Corporate Tax. 

Cabinet Decision No. 49 of 2023

In pursuance of Article 11(6), Cabinet Decision No. 49 of 2023 (CD49) provides that Businesses or Business Activities, conducted by a Resident or Non-Resident natural person, shall be subject to Corporate Tax only where the total Turnover derived from such Businesses or Business Activities exceeds AED 1,000,000 within a calendar year.

However, Turnover derived by a natural person from the following three sources shall not be regarded as being derived from Businesses or Business Activities, regardless of the amount of Turnover derived from such sources:

  1. Wages - The wage that is given to the employee in consideration of their services under the employment contract, whether in cash or in kind, payable annually, monthly, weekly, daily, hourly, or by piece-meal, and includes all allowances, and bonuses in addition to any other benefits provided for, in the employment contract or in accordance with the applicable legislation in the State.
  1. Personal Investment income - Investment activity that a natural person conducts for their personal account that is neither conducted through a Licence or requiring a Licence from a Licensing Authority in the State, nor considered as a commercial business in accordance with the Federal Decree-Law No. 50 of 2022.
  1. Real Estate Investment income - Any investment activity conducted by a natural person related to, directly or indirectly, the sale, leasing, sub-leasing, and renting of land or real estate property in the State that is not conducted, or does not require to be conducted through a Licence from a Licensing Authority.

Insofar as a natural person receives income from any of these three sources, such income will not be subject to Corporate Tax. Furthermore, these amounts can be excluded from the AED 1,000,000 threshold test contemplated above.

Registration Obligations

CD49 confirms that a natural person that is not conducting a Business or Business Activity subject to Corporate Tax in accordance with the guidelines set out above shall not be required to register for Corporate Tax. 

Our Tax Service Offering

It is important for taxpayers to remain up to date on the most recent Ministerial and Cabinet Decisions as released from time to time as these contain important information on the application of the CT Law as well as taxpayer rights and obligations.

In order to ensure that your business adopts the most beneficial tax structure while simultaneously mitigating unwanted tax risk, the Tax team at Hadef & Partners is available to discuss these and other questions you might have regarding the tax affairs and general preparedness of your business in respect of the new Corporate Tax regime.  

In particular, Theunis Claassen from our Tax Team, can guide you in identifying key areas of your business that will be impacted by the new Corporate Tax regime and assist you with specialist tax planning and the implementation of appropriate mechanisms to achieve optimal tax outcomes for your business.

Please feel free to contact Theunis Claassen, our Head of Tax, to arrange an initial discussion regarding your business and its taxes.

 
 

This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.