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Chapter 4: Who Is a Resident Taxable Person under UAE Corporate Tax? — Transcript

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0:00Welcome everyone to chapter 4 of
0:03corporate tax training series. Uh from
0:05today onwards we will be shifting a
0:07little bit of gear. We are going to get
0:09into the real concepts and articles of
0:12uh corporate tax law.
0:14So what we are going to discuss today in
0:17chapter 4
0:19is taxable person and tax base.
0:23We already discussed in the previous
0:25chapter
0:26CT means corporate tax is payable by
0:30taxable person
0:32on taxable income at a prescribed tax
0:36rate for a tax period. This is what we
0:40have learned the definition. Now in the
0:42previous chapter we just touched upon
0:45taxable income um the difference between
0:49accounting profit and tax profit. Today
0:52we are going to discuss taxable person.
0:55Who is a taxable person? So in corporate
0:58tax law taxes are paid by taxable
1:01person. Now who is this taxable person?
1:05This is discussed or explained in
1:09corporate tax law which is federal
1:10decree law number 47 of 2022 from
1:13article 11 to article 15.
1:18This is what we are going to cover.
1:21When we are talking about taxable
1:23person, let's broadly divide the taxable
1:27person into two.
1:30First one is resident.
1:34Second is non-resident.
1:42Let's first discuss the resident
1:43concept. Who is resident for corporate
1:46tax purpose? Again further let's divide
1:49it into two. One is jurorical person.
1:57Second is natural person.
2:05Juridical person means you can simply
2:08understand a incorporated entity is
2:11called juridical person. So jurical
2:13person can be a company
2:16LLC company. It can be incorporated
2:19partnership like LLP. It can be a public
2:22joint stock company.
2:25It can be any incorporated entity.
2:30Now who is natural person? Natural
2:33person is individual
2:38who is conducting business in UAE using
2:41some trade license or permit.
2:44How a natural person can come under the
2:47corporate tax regulation only when that
2:50natural person is conducting business or
2:53business activity in UAE. Maybe a
2:55natural person can have a sole
2:57establishment license.
3:03Maybe a natural person can have a
3:05freelance permit
3:09or without any permit.
3:16If any natural person is conducting
3:19business or business activities inside
3:21UAE then that natural person is coming
3:24under the scope of UAE corporate tax. We
3:27will discuss it in detail.
3:29So resident jurorical person means
3:31incorporated entity natural person mean
3:33individual using uh trade license or
3:37permit uh to conduct any business or
3:40business activity in UAE. When we talk
3:43about resident first thing what we need
3:45to understand that
3:48resident is subject to tax in UAE for
3:52worldwide income.
3:56It is explained in article 12 of UA
3:59corporate tax law. If someone
4:01categorized as resident, that particular
4:04resident is subject to UA corporate tax
4:07on their UA income also, foreign income
4:10also.
4:11Let's say a UA LLC company who are
4:14getting income from UAE uh let's say
4:17500,000 dhams and they got 500,000 dhams
4:20income from outside UAE also both are
4:23subject to UA corporate tax.
4:27When it comes to natural person,
4:30natural person is subject to worldwide
4:32taxation. Again natural person is also a
4:34resident if they conduct a business or
4:37business activity. So natural person's
4:40UAE income is subject to tax plus
4:44outside UAE income
4:48is also subject to corporate tax.
4:52So far
4:54it is connected with
5:01UA business.
5:03I will give an example to you. Let's say
5:05someone who is working in UAE as a
5:08photographer freelance photographer and
5:11uh obviously the income earned from UAE
5:13as a photographer is going to be uh
5:16subject to the corporate tax when this
5:18sub person getting a event or let's say
5:21he got some uh like you know work for
5:24photography let's say in Australia and
5:27he's flying to Australia to do that work
5:30so far that income is connected to his
5:33UAE business that outside income is also
5:36subject to corporate tax.
5:40Juritical person it is straightforward
5:42jurorical resident person is subject to
5:45worldwide income.
5:47Now we have more thing to discuss on
5:49natural person. Natural person when a
5:53natural person will be subject to
5:54corporate tax. So in article 11
5:58it is defined
6:00natural person is coming under the scope
6:02of UA corporate tax as a resident.
6:07Now when a natural person is subject to
6:09corporate tax that is defined in cabinet
6:12decision number 49 of 2023.
6:16Cabinet decision number 49 of 2023
6:19explained that a natural person will be
6:22subject to corporate tax if
6:26he or she
6:30conducts
6:33business
6:34in UAE
6:37plus the business income
6:41whatever the business income uh like
6:44which he's conducting or she's
6:45conducting in UA
6:46is more than 1 million AD
6:51in a
6:53Gregorian calendar year.
6:56We already discussed what is Gregorian
6:58calendar year. It is nothing but a
7:01calendar year which is starting from
7:02January and ending 31st December is the
7:06Gregorian calendar year. So what will
7:08happen if a natural person who is
7:10conducting some business in UAE but the
7:13annual income or the annual revenue is
7:15below 1 million dhams what is going to
7:18happen in that case in that case if it
7:21is less than 1 million in a year then
7:23that person is not subject to corporate
7:26tax when I'm telling not subject to
7:28corporate tax that means no tax
7:31registration required
7:37No tax filings required,
7:42no tax payment.
7:44That person is not subject to corporate
7:47tax at all.
7:51Let's say what will happen? Someone who
7:54got 1 million dhams and they have to
7:57register.
7:59Once they're registered, what will
8:01happen if the revenue goes below 1
8:02million? This is a question. Let's say a
8:05natural person, Mr. A,
8:09he got let's say 2 million dhams in
8:122025.
8:17Obviously, he need to register.
8:21Now the question is when he need to
8:23register
8:25there is a deadline. So all the
8:27registration deadline when a person need
8:29to be registered for corporate tax
8:31purpose there is a FTA decision.
8:35This FTA decision has given a full
8:38clarity that when a person should
8:41register in UAE we will as as and when
8:44we discuss about each person resident
8:46non-resident we will discuss uh the
8:50registration deadline also and their tax
8:52obligation as well. FDA decision number
8:563 of 2024
8:58is explaining when a natural person or
9:01when a taxable person need to register
9:03for corporate tax. As per the FDA
9:06decision number three of 2024, when a
9:09natural person exceeding 1 million dhams
9:12in a Gregorian calendar year, that
9:14person should register within
9:183 months
9:21in the subsequent year
9:30within 3 months in the subsequent year.
9:32This is the deadline for a natural
9:33person to register once the person
9:36crosses 1 million dhams.
9:38Now once the person registered what is
9:40going to happen? That person is going to
9:43file the tax return.
9:49What is the deadline for filing the tax
9:51return? We already discussed this one. 9
9:54months
9:56from the end of tax year.
10:04Now the question here it is what is a
10:06tax year
10:08we are going to discuss tax period. If
10:10you remember in the definition we
10:11already uh outlined that uh a tax like
10:15you know the tax period. So this tax
10:17period will cover what is a tax year. To
10:21make the things clear let me give an uh
10:25idea about natural person. A natural
10:27person always the tax year is January to
10:31December.
10:32Always a company can choose a different
10:35tax year but when it comes to a natural
10:37person the tax year is always January to
10:41December.
10:43That means once a person registered they
10:46need to file within 9 months mean
10:47generally that person or not generally
10:51always that person's tax filing deadline
10:53will be September 30
10:58every year.
11:00Now what is going to happen if a natural
11:03person is registered but in the
11:06subsequent year the revenue is less than
11:101 million.
11:13So in 2025 the natural person registered
11:17because the revenue is more than 1
11:19million. Now in 2026 the natural
11:22person's revenue is less than 1 million
11:24dhams. What is going to happen is the
11:26question is do
11:29does he need to dregister from corporate
11:32tax? No,
11:34he need to continue keeping the tax
11:36number and continue keeping the tax
11:39filing. What in tax filing is going to
11:42do? He's going to file a nil return. The
11:46person is going to file a nil return.
11:51Please make this understanding that in
11:53entire corporate tax only the natural
11:56person who is getting lesser less than 1
11:59million dhams that is the only situation
12:02a nil return is getting filed.
12:07So what we are discussing here about a
12:09natural person a natural person when the
12:11natural person need to register when the
12:14revenue exceeds 1 million dhams once the
12:17revenue exceeds 1 million dhams when the
12:20person required to register let's say if
12:22in 2025 if the person got more than 1
12:25million dhams the person need to
12:26register before 313 2026 within 3 months
12:32once registered they need to file the
12:35tax return within 9 months from on the
12:37end of tax year. What is the tax year
12:39for natural person? It is always January
12:41to December. So their deadline will be
12:44September.
12:46After registration, if the turnover or
12:48revenue goes below 1 million dhams, then
12:51the person is not supposed to dregister
12:54or cancel the tax return. Instead, the
12:56person required to file a nil return.
12:59When a natural person need to dregister
13:02only
13:04when he or she stops the business
13:10entirely.
13:13When he or she needs stop the business
13:15entirely then only that person required
13:18to uh dregister from the corporate tax.
13:22We told a natural person required to
13:24register when the revenue exceeds 1
13:26million dhams. Now what is including in
13:30this 1 million dhams revenue? This is
13:32again explained in cabinet edition
13:33number 49 of 2023.
13:361 million
13:38it includes all business income.
13:44So let me say it it includes uh all
13:47income
13:49except
13:52three things. What are all these three
13:54things? Number one wages. Number
13:59two,
14:01real estate
14:04investment income.
14:11Number three, personal
14:16investment income.
14:21If a natural person is getting one out
14:24of these three income be it wages or
14:26personal investment or real estate
14:28investment this no need to consider for
14:33[clears throat] uh cor for the 1 million
14:35threshold.
14:38Apart from these three things
14:40[clears throat]
14:41if a natural person is getting any other
14:44income that is considered as that
14:46person's business income. If that
14:48business income is exceeding 1 million
14:51dhams
14:54then that natural person required to
14:56register. Now let's get into the uh cap
15:01these three items what we discussed
15:03which is excluded from uh 1 million
15:06dhams threshold
15:08wages. Wages can what is wages? Again
15:11article one of cabinet decision number
15:1649 of 2023 is define what is wages, what
15:20is real estate investment income and
15:22what is uh personal investment income.
15:28Further UAE Federal Tax Authority has
15:30published a detailed guide on natural
15:32person which is CTC
15:37TNP1
15:40in 2023.
15:43When you see a guide number how it is
15:47like we told CTG TNP1 what does that
15:50mean? CTG it is corporate tax guide. Now
15:55this is the guide name taxation for
15:58natural person taxation for natural
16:01person and this is the first guide let's
16:03say in future FTA is coming up with the
16:05new guide then it may be named as CTG
16:08TNP2
16:11this guide has clearly explained all
16:15these three things which required to be
16:17excluded while considering the 1 million
16:19threshold wages can be it can be salary
16:25hourly payment,
16:28weekly payment.
16:30It can be any sort of uh payment paid to
16:34an employee
16:37against
16:40employment contract
16:46or any other applicable
16:53legislation in UAE.
16:59If an employee is getting any benefits
17:02be it a salary or a hourly wage or it
17:05can be weekly, monthly or the bonus
17:09whatever benefits an employee is getting
17:11against a labor contract that is
17:14considered as wages it is told against a
17:18labor contract or applicable as per the
17:21UAE law.
17:23This as per the applicability in UAE
17:26is not yet clarified. So uh it's a it's
17:30still a question mark which obviously we
17:32get that if a owner is taking salary is
17:36it considered as salary or not?
17:39If a business owner who is working for
17:41the company maybe that person is having
17:43an investor visa. If the owner is taking
17:45salary is it considered as a uh wages or
17:49not? It is not that explicitly told but
17:52in market generally people consider it
17:54as a salary. Many of many people are
17:57interpreting it as a salary. Now comes
18:00real estate investment income.
18:05When we are talking about real estate
18:08investment income, again article one of
18:10cabinet edition number 49 of 2023
18:13told that if a natural person has
18:17invested in real estate and he is
18:19getting income, what sort of income the
18:21person can get? It can be rental income.
18:23It can be capital gain when the person
18:27selling the property. Uh or it can be
18:30any any sort of lease payment,
18:32subleasase payment, whatever a natural
18:33person is getting.
18:35It is not considered for the 1 million
18:38threshold.
18:41It is not considered for 1 million
18:43threshold.
18:45If
18:47the
18:49real estate activity
18:53conducted
18:56without trade license
19:00first question is like is it required to
19:04have a trade license to uh own a
19:06property in UAE and give it for rental
19:09purpose? It is subjective.
19:12If a person let's say if a person buying
19:14property selling property that is
19:18happening on a frequent basis every
19:20every like you know every week or every
19:23month the person is buying and uh
19:25selling a real estate property then it
19:27is not considered as investment income.
19:30Nowhere in the tax law directly not
19:33defined what is the definition of
19:35investment.
19:37Now how I interpreted it the investment
19:40is anything you are holding for a period
19:43more than 12 months. If you are holding
19:47anything for more than 12 months then it
19:50can be considered as investment. So if
19:52someone who is who's buying a property
19:54selling property on a on a regular basis
19:57then it's not considered as an
19:59investment.
20:01Maybe there are two possibility. One,
20:04that person has a trade license. How a
20:07person has a trade license? We are
20:08talking about natural person. So please
20:10don't get confused. Trade license means
20:13it's a company. Trade license means that
20:15person has some permit or trade license
20:18to do this business activity or the
20:20activity in the individual capacity. So
20:23we can take an example sole
20:25establishment.
20:29If a natural person has a sole
20:31establishment and he is managing the
20:34property or owning the property and um
20:37doing everything under the sole
20:39establishment trade license that means
20:43it is not a real estate investment
20:45income not a real estate investment
20:47income. This is one one situation.
20:49Second situation, no trade license
20:55but require trade license.
20:59Why? Why does it matter? I'll explain to
21:02you.
21:04Let's say a individual who is
21:06continuously buying and selling
21:08property. That means what he's doing? He
21:10is doing a business activity called
21:12buying and selling.
21:15He may have trade license, he may not
21:17have trade license. He has if he has a
21:19trade license then that means he's
21:22directly the income from real estate is
21:24subject to corporate tax. Even if the
21:27person does not have a trade license but
21:30he required to have a trade license then
21:33also that is not considered as real
21:35estate investment income.
21:37I will give you an example.
21:40If someone who is giving
21:43property for short-term rental,
21:51let's say they are putting the property
21:53in Airbnb or Booking.com
21:57and they are giving it uh for a
21:59short-term rental.
22:01In this case,
22:03when a natural person require a license
22:06to do this business activity. So there
22:09I'm I'm not sure about the exact number
22:11but it is somewhere seven or eight. If a
22:14person is doing the same business
22:16activity having the property putting it
22:18for short-term rental and uh if the
22:21number of units the person is renting
22:23out is more than seven or eight I think
22:26it's seven or eight only then that
22:29person need a license.
22:32What license that person need? That
22:33person need a vacation
22:36home rental license.
22:41regardless that person take this license
22:43or not. So licensing requirement is from
22:46a different authority. Licensing
22:48requirement is taken care by ministry of
22:51economy.
22:56Ministry of economy is prescribing that
22:58if you conduct any business activity you
23:00need to take a trade license. Tax
23:03authority is telling that regardless you
23:05take a trade license or not but the
23:08activity what you are doing require a
23:10license that means it is considered as a
23:12business. This is the main difference.
23:15So if a natural person
23:18doing some real estate activity if that
23:21real estate activity is either licensed
23:23or require a license then it is not
23:25considered as a investment activity. The
23:29same way we discussed the third category
23:32personal investment.
23:35In personal investment also
23:38article one of uh cabinet edition number
23:4049 of 2023
23:43explained that if the personal
23:44investment done through a license
23:53that means it is considered as a
23:56business activity.
24:00In short, when a natural person is
24:03subject to corporate tax, natural person
24:05is subject to corporate tax when the
24:06business income exceeds 1 million. When
24:08you calculate 1 million, three things
24:10you need to always exclude. Wages, real
24:14estate investment income which is
24:16licensed or required to have a license.
24:19Third thing, personal investment income
24:21which is done through a license or
24:23considered as a
24:26business activity under
24:39considered as a commercial transaction
24:42under the federal decree law Number
24:4850 there is a federal decree law which
24:51explain which transactions are
24:54considered as a business activity.
24:58If excluding these three things if a
25:00person is getting anything it is
25:02considered as a business income. If that
25:03business income exceeds 1 million that
25:05person required to register when the
25:06person required to register within 3
25:08months from the end of particular
25:10Gregorian calendar year in which the
25:13person exceeded 1 million dhams once
25:16registered the person required to submit
25:17the annual tax return. When the annual
25:20tax return is filed when required to be
25:22filed within 9 months in any year if it
25:25is below 1 million dhams the natural
25:26person required to submit nil return.
25:29Once the natural person completely stop
25:31the business uh activity then that
25:33natural person can dregister from
25:36corporate tax.
25:38This is about natural person. So from
25:41where we are started we started about
25:43the taxable person and in the taxable
25:46person we discussed resident and in
25:49resident we discussed jurorical person.
25:51Jitical person is company natural person
25:54is individual.
25:58Now when a person is resident any be it
26:02resident natural person or jurorical
26:04person we told as as per article 12
26:08their tax basis tax base means on which
26:11income they need to pay taxes. Article
26:1312 it is told they need to pay taxes on
26:16their worldwide income. A company will
26:18pay taxes on the worldwide income. A
26:20natural person will pay taxes on UAE
26:22income as well as foreign income as long
26:25as that income is connected to the UAE
26:27business activity.
26:30When a jurorical person required to
26:32register
26:36natural person's case we told Gregorian
26:39calendar year uh 3 months all these
26:42things when it comes to jurorical person
26:45any jurorical person who establish their
26:48business in UAE they need to register
26:50within 3 months
26:53from the
26:58date of incorporation
27:05from the date of incorporation the
27:07jurorical person required to register
27:11where it is told it is told again in the
27:13same decision which we discussed FDA
27:14decision number
27:18what was the number FDA decision number
27:20three of 2024
27:24once they're registered what they need
27:26to do they need to file the tax return
27:29when they need to file the tax return.
27:33So uh let me make this uh things very
27:36clear for natural person there is a
27:39threshold 1 million that threshold is
27:41not applicable for jurorical person
27:43jurorical person regardless they make
27:45income they don't make income uh they
27:49are uh like you know on losses they
27:51didn't start operation they didn't open
27:53bank account nothing is accepted as a
27:56reason the moment their license is set
27:58up from the date of incorporation
28:02within 3 months The jurorical person
28:05required to register for corporate tax.
28:07Once registered, they need to file the
28:10annual tax return. When they need to
28:12file the annual tax return
28:14again within
28:179 months from the end of tax year.
28:24Now question what is tax year? Tax year
28:26is equal to
28:28financial year.
28:33Financial year in UAE
28:37generally it is 12 months.
28:40Can a company we discussed in natural
28:42person it is always January to December
28:44for a company it is it mandatory to
28:47follow always January to December? No.
28:49It can be based on the company's
28:52decision. It can be April to March.
28:56It can be uh let's say January to
28:58December.
29:00It can be October to September.
29:03Any financial period a company can
29:06choose.
29:09When a company need to dregister
29:12if when a company need to dregister in
29:14natural person's case we told if a
29:16natural person fully stop the business
29:18activity then that person required to
29:20dregister. In company's case also they
29:23need they can they require to dregister
29:26once the business is stopped. When I'm
29:29telling once the business is stopped,
29:32it's not that the company uh stopped
29:35doing business. No, the thing is that
29:38the company once they liquidate the
29:41license, once they liquidate the
29:44license, then they have a requirement to
29:45dregister from corporate tax.
29:54Now, what have we discussed so far?
29:57I'm just making not the jurorical
30:00natural person. I'm making it is
30:01individual and company. They are taxed
30:04at taxed on their worldwide income.
30:09They are also taxed on the worldwide
30:11income. They need to register within 3
30:15months.
30:18They also required to register within 3
30:20months
30:23but only after the after they exceed 1
30:26million dhams
30:30they required to file
30:32they also required to file they need to
30:35file 9 months after financial year or
30:39tax year they need to file
30:449 months after calendar here.
30:49Now they also they when they need to
30:51dregister
30:54once license liquidated
30:59for a natural person there may be a
31:01license there may not be a license but
31:03that's why it is told once the business
31:05is fully stopped.
31:12What is the deadline for dregistration?
31:14Deadline for dregistration is 3 months.
31:193 months. Once the business is stopped
31:21or the license is liquidated within
31:24[clears throat] 3 months the corporate
31:25tax dregistration application need to be
31:28submitted.
31:30Now if you see
31:33the factor
31:36three
31:38what all we can bring it under factor
31:40three. Number one
31:42registration
31:44deadline
31:48within how many months they need to
31:49register within 3 months.
31:55Second one dregistration
31:59within how many months the dregistration
32:01need to be done? Again 3 months.
32:05Third thing what is the threshold for
32:09small business relief we already
32:12discussed if you remember any business
32:13who is making below 3 million dhams
32:19that person can get a small business
32:22relief. These are the three facts about
32:26uh number three in UA corporate tax.
32:31Let me give you another factor which is
32:33factor
32:35one.
32:38What all we can bring it under factor
32:40one. First one if a natural person is
32:44exceeding more than 1 million dhams then
32:48the person required to register for
32:50corporate tax. Second thing is on the
32:53implementation of corporate tax law.
32:55When the corporate tax law got
32:56implemented 1st
32:59June
33:012023.
33:02If you find any other things which
33:04[music] I missed, you can always put it
33:06in the comment. It will be helpful for
33:08others to uh like you know make their
33:11understanding very clear. Whatever
33:13coming into me in my mind, I'm putting
33:15it here. I'm sure I must have missed
33:18something which you can comment.
33:21So with this let's uh wind up today's uh
33:25session. Today we have discussed on the
33:28taxable person and in the taxable person
33:30we have divided resident non-resident
33:32and we have discussed uh where it is
33:34told uh about the taxable person it is
33:37told in article 11 and where it is
33:40explained tax base that means uh on what
33:44basis they need to pay tax worldwide
33:46income that is explained in article 12.
33:50We discussed about resident. Resident
33:52further we discussed resident uh
33:54jurorical person and resident natural
33:58person. Now next what we are going to
34:00discuss is non-resident
34:04when a non-resident is subject to
34:07corporate tax in UAE and on what basis
34:10they are going to pay taxes in UAE when
34:13they need to register when they need to
34:15dregister. This is what we are going to
34:18discuss in next chapter. See you in next
34:20chapter.

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