UAE Corporate Tax: Alert for Consultants, Freelancers, and Influencers must be ready for

• Corporate tax for UAE individuals: UAE residents who generate more than Dh1 million from consultancy or other business activities must register for and pay corporate tax. This applies to self-employed persons, social media influencers, freelancers, and retired individuals who do consultancy or other work. The registration for corporate tax will start from 2024, and the individuals will have to obtain a Tax Registration Number. The FTA has issued a comprehensive guidebook on corporate tax law and its implications for individuals.

  
  

• Small business relief option: Individuals who do not exceed Dh3 million in annual turnover can apply for the small business relief package, which grants them a tax break for the relevant period. The tax break means that the individual will not have to pay the 9 per cent rate on the taxable income that exceeds Dh375,000. The FTA has announced the conditions and procedures for applying for the small business relief package, which include submitting a formal request and providing evidence of the turnover. The FTA will review the application and notify the individual of the approval or rejection.

  
  

• Exempted income category: Income derived from wages, real estate investments, or personal investments by an individual is not subject to corporate tax, if the real estate activities are not conducted through license from a local licensing authority. The FTA has clarified that director remunerations are also considered as business income and not as wages, and that income from selling, leasing, sub-leasing, or renting of land or real estate property in the UAE is not subject to corporate tax. The FTA has also specified the scenarios where income from the Gulf countries would be subject to corporate tax, such as when the income is related to the business or business activity conducted in the UAE.

  
  

• Defining a business or business activity: The FTA provides some criteria to determine whether an individual's activities fall under the scope of business or business activity, such as the location of the assets. the contracting or business development, and the persons involved in the production or or selling of the goods or services. These criteria are relevant for calculating the turnover and the taxable income of the individual. The FTA also gives some examples of scenarios where an individual's income would be considered as business or business activity, such as a physiotherapist who provides treatment sessions in the UAE and other Gulf countries, or an employee who also runs a separate business of his own. The FTA advises the individuals to maintain proper accounts and documentation to show their earnings and cost details.

  
  

• Tax rate and threshold: The corporate tax rate is 9 per cent for taxable income that exceeds Dh375,000 in a year. The first Dh375,000 of taxable income is subject to a 0 per cent rate. The taxable income is the net profit from the business or business activity, after deducting the allowable expenses. The turnover is the total income from the business or business activity, including any in-kind payments, such as a free stay at a luxury hotel for a social media influencer. The turnover and the taxable income are calculated based on the Gregorian calendar year. The FTA has explained how to value the in-kind payments at how to compute the taxable income for different at market value and rent scenarios.

  
  

• Sole proprietorship and unincorporated partnership: The FTA considers a sole proprietorship and the natural person as one and the same taxable person, while each partner in an unincorporated partnership is treated as an individual taxable person, unless they request otherwise. This means that the sole proprietorship's income is taxed at the individual level, while the unincorporated partnership's income can be taxed either at the partnership level or at the individual partner level. The FTA has the discretion to approve or reject the application of the unincorporated partnership to be treated as a taxable person. The FTA has also clarified the difference between a sole proprietorship and an unincorporated partnership, and the tax implications of each.