Despite the broad alignment with international standards, the UAE has tailored its corporate tax to ensure a targeted application of tax laws. And with a focus on specific criteria and thresholds to determine tax obligations.
This nuanced approach underscores the UAE government's commitment to fostering a conducive business environment while ensuring tax equity. In light of the recent changes to the taxation landscape in the UAE, it's crucial for entrepreneurs, investors and individuals (or ‘natural persons’ for tax purposes) to gain a comprehensive understanding of how taxation applies to those with multiple businesses in the country.
Turnover threshold
If the total turnover generated from an individual’s businesses exceeds Dh1 million within a calendar year, the resident or non-resident individual is obliged to adhere to the requirements of corporate tax. This includes registering for corporate tax with the Federal Tax Authority (FTA), submitting tax returns and paying the tax, where applicable.
A critical consideration for natural persons juggling multiple businesses is how the corporate tax turnover threshold will affect their business. The turnover threshold of Dh1 million is assessed against the total turnover of all the businesses or business activities combined.
Registration options
If the individual with business interests exceeds the turnover threshold and is regarded as a ‘taxable person’, the corporate tax registration will also apply. Here, the question arises as to whether each business has to register or whether the person in his or her own capacity have to register for corporate tax.
In these cases, the natural person is required to register for corporate tax and will obtain a single Tax Registration Number (TRN).
According to the FTA, after the initial tax registration, if the person initiates a new business venture, the same tax registration number can be used for the new business. This eliminates the need for the individual to undergo a fresh registration process with the FTA for corporate tax.
It is important to note that the natural person can only deregister for corporate tax should the business end by dissolution, liquidation or otherwise - but not if the business no longer falls within the turnover threshold.
Unincorporated partnership taxation
The corporate tax implications for unincorporated partnerships is another critical matter to be considered. As per the FTA, an unincorporated partnership is a relationship established by contract between two or more persons, where each partner must register, file a tax return and pay for corporate tax in their own individual capacity, subject to the turnover threshold.
The assets, liabilities, income and expenditure of the unincorporated partnership will be allocated to each partner in accordance with their distributive share in the partnership. In this case, each partner will be required to register for corporate tax and file annual tax returns in their own individual capacity.
In this case, an application can be made for the unincorporated partnership to be treated as a taxable entity, subject to its own taxation, rather than individual partners being taxed separately. This approach is particularly advantageous for individual partners if the distributive income from the partnership pushes their individual turnovers beyond the Dh1 million threshold, making them liable for corporate tax.
Exclusion from corporate tax
In the UAE, specific types of income are exempt from corporate tax for individual taxpayers. This exemption covers income derived from wages, personal investments, and real estate investments.
Strategic tax planning
To optimize their tax position, individuals with multiple businesses should engage in strategic tax planning. This involves carefully evaluating their business activities, income sources, and potential deductions.
Ensuring tax compliance and accurate reporting is paramount for individuals with multiple businesses in the UAE. Proper record-keeping, timely filing of tax returns, and adherence to tax payment schedules are essential.
Failure to comply with tax obligations can lead to penalties and legal repercussions. Additionally, understanding the intricacies of value-added tax (VAT) and its application to specific business transactions is crucial for avoiding tax errors.
Natural persons with multiple businesses in the UAE should be well-informed about the taxation framework and the thresholds that dictate their corporate tax liability. Familiarizing themselves with options for combined tax relief, registration processes, and exemption benefits can empower individuals to effectively navigate the intricate reality of taxation.
