Corporate Tax: At Dh1m, UAE ensures sizeable upper limit for individuals in business unlike VAT's Dh375,000

Dubai: Single-person businesses or those operating as a small enterprise in the UAE will have much to be relieved about their future corporate tax obligations, with the upper ceiling set at Dh1 million or over in annual revenues.

The Ministry of Finance’s decision is ‘one big positive’ for micro-business owners, professionals such as doctors or tech consultants who are self-employed, freelancers, influencers, and the like. “Those in specialised services will be major beneficiaries from the Dh1 million ceiling because it gives them a chance to grow their business nicely,” said a tax consultant. “And without having to worry about what their tax obligations are.

“The UAE has, with this decision, given more breathing space for such enterprises dependent heavily on the individual-owner.”

The Dh1 million threshold is thus a big plus for individual/micro businesses. What's more, each profession is treated with the same requirement on income ceiling. 

There are other reasons why the Dh1 million and over requirement would resonate with such businesses. Under VAT rules, the minimum slab for registration and compliance had been set at Dh375,000 in annual revenues. (For voluntary registrations, the slab was set at Dh187,500.)

Some tax consultants had been thinking the CT requirements would be around Dh500,000 a year in revenues or different professions would get different income slabs for corporate tax registration. (The UAE Corporate Tax comes into effect from June 1, 2023.)

“What the Ministry of Finance has done is link the corporate tax to the Dh1 million revenue threshold rather than the nature of the individual’s business activities,” said Pankaj S. Jain, Managing Director of AskPankaj Tax Advisors.

“The onus is now on individuals to evaluate the nature of their income and then go in for CT compliance measures.

“Some should take extra care to be on the right side of the CT – for instance, celebrities charging a fee for appearances and brand endorsements, social media influencers, independent professionals such as doctors and sportsmen will have to understand their tax obligations.”

It’s not a tax on personal income

What the latest CT announcements on individual income are is definitely not a tax on personal income. The UAE has been quite clear that there will be no tax on personal incomes.

Even in the latest update, it has been made clear that if the individual were to earn income from renting out a property or through investments in stocks or other asset classes, that source of income will NOT fall under the corporate tax purview.

Instead, they fall under the ‘out-of-scope categories’. Salaries too would not fall within the CT coverage.

“By simplifying the Corporate Tax system, the UAE continues to foster an attractive business environment that supports the growth of small businesses, startups, and the overall economy,” said Younis Haji Al Khouri, Under-Secretary at the Ministry of Finance.

Business and tax consultants agree that’s exactly what the new updates are about.

“The biggest takeaway is setting the ceiling at Dh1 million and over,” said a business consultancy advisor. “That would be enough of an incentive for a professional or a freelancer to launch a business in the UAE.”