In the realm of taxation and policies, the United Arab Emirates (UAE) has instituted a distinctive approach by introducing a notable exemption tailored to natural persons. In this context, natural persons refer to individual human beings as opposed to legal entities or corporations. The UAE's corporate tax framework, recognized for its business-friendly environment, extends a special provision that exempts natural persons from certain tax obligations. This exemption signifies a strategic initiative aimed at fostering entrepreneurship, investment, and economic growth within the UAE.
If you don’t know then the Ministry of Finance has released a few exemptions from Corporate Tax law registration under Ministerial Decision No.43 by 2023. By granting this exception, the UAE acknowledges the pivotal role that individuals play in driving economic activities and encourages their participation in the business landscape.
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Since the inception of the Corporate Tax Law in June 2023 for businesses and natural persons of 9% tax rate on income more than AED 375,000 annually which is equivalent to $102,000, residents of UAE are more aimed to find out what exemptions are left for natural persons under the taxation policy in Dubai. Plus, there are more queries to figure out do they need to hire tax consultants in Dubai? To give you a comprehensive view of the taxable income and non-taxable income, we have compiled a few points and tips that need to be understood by the people or businesses set up in the land of the United Arab Emirates.
The UAE is known for its business-friendly environment and tax benefits. It doesn't levy corporate income tax on most businesses, including those owned by natural persons. Here's a detailed guide on exemptions for natural persons in the UAE:
1. Annual Income Below AED 375,000 ($102,000)
Recently, the UAE government has imposed a federal corporate tax of 9% on most businesses, including those owned by natural persons. If the income of the business or a natural person is less than AED 375,000 per annum, then the total income would not be subjected to the assessment. This simply means a 0% tax rate will be implemented for those who have an income below the above-given threshold. However, it's essential to understand that these exemptions aim to reassure small businesses or even start-ups of seamless business operations without taking an additional burden of taxes, allowing them for economic growth and entrepreneurship.
2. Individual / Freelance Earnings in Personal Capacity
The Corporate Tax Law of UAE also exempts individual and freelance earnings from taxation by offering them relief in the forms of profits, interests, saving schemes, capital gains, earnings from real estate investments, and other bank deposits schemes along with revenue from securities and shares. The motive is to help individuals and encourage them to continue investing in different schemes without any additional tax liabilities.
On the other hand, Freelance professionals with a net income below AED 375,000 annually are subject to be exempted from the Business Tax UAE.
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3. Major Businesses Involved in NRE (Natural Resource Extraction)
Businesses involved in oil and gas are not going to come under corporate tax as they are subject to be included under Emirate-level taxation. This will help to ensure UAE’s natural resource sector follows a competitive edge to attract investment on a global scale. In addition to this, there are major entities exempted from the UAE’s business tax law, which include –
Public benefit entities
Public pension
Investment funds
Along with Social Security funds
These exemptions help support UAE’s various sectors while ensuring active participation between public and private organizations in the country’s development.
4. Free Zones
One of the main attractions for businesses and individuals in the UAE is the presence of free zones. Free zones are designated areas that offer various incentives, including exemption from corporate taxes for a specified period (usually 15 to 50 years), full repatriation of profits, and complete foreign ownership.
5. Double Taxation Agreements (DTAs)
The United Arab Emirates (UAE) has signed various Double Taxation Agreements with multiple countries. These agreements are intended to prevent double taxation of income earned in one country by residents of the other country. They often provide provisions for reduced withholding tax rates on certain types of income, such as dividends, interest, and royalties.
6. Value Added Tax (VAT)
While the UAE does impose the VAT (Value Added Tax) of 5% on most goods and services much earlier than the corporate tax. This tax applies to businesses operating in the UAE, including natural persons who are engaged in taxable activities. However, there are certain exemptions and zero-rated supplies that may apply.
Keep in mind that tax regulations and exemptions may vary based on the emirate in which you operate and the specific nature of your business activities. For the most accurate and up-to-date information, consult with local corporate tax consultants in Dubai or tax advisors familiar with the UAE's tax laws and regulations.
Corporate tax in the United Arab Emirates (UAE) refers to the levies imposed on the profits earned by companies operating within its jurisdiction. Historically, the UAE has been renowned for its tax-friendly environment, as it does not impose federal corporate income tax on most businesses. But with the introduction of 9% of UAE Corporate Tax 2023 businesses with income more than AED 375,000 annually came under the taxation policy now. In spite of the business tax introduction, there are various sectors or you can say industries that are exempted to pay the business tax, we have mentioned all of them above-general paragraphs.
This new corporate tax in the UAE demonstrates the country’s commitment to financial transparency while helping to maintain competitiveness worldwide.
Understanding the overall exemptions for natural persons from UAE Corporate Tax 2023 and learning to claim them at the time of return is important for every business operating in the country. And this is where tax advisors or corporate tax consultants came in handy while helping businesses to understand and ensure compliance with the new informed tax law.
ACE Tax Consultants, a leading accounting and tax consultancy firm in the UAE provides expert assistance and solutions for businesses working in the country’s business tax landscape. If you are someone who is not a tax-savvy person and finds it difficult to understand the compliance, exemptions, and reliefs of taxation, feel free to reach us anytime.
