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These people can be divided into taxable persons, tax-exempt persons and outsiders, and these persons can be further divided into legal persons or natural persons.
A legal person is an entity established or otherwise recognized under the laws and regulations of the UAE or the laws of a foreign jurisdiction, with legal personality separate from its founders, owners and directors. Examples of UAE domestic legal entities include limited liability companies, foundations, “onshore” trusts, public or private joint stock companies, and other entities with separate legal personality under applicable UAE “mainland” legislation or free zone regulations. A branch of a domestic or foreign legal person in the UAE is considered an extension of its “parent company” or “headquarters” and is therefore not considered a separate legal entity.
A natural person in corporate tax law refers to an individual. A natural person may form a sole proprietorship or a civil company for certain business activities. For CT purposes, these entities are considered natural persons or persons who own them.
Anyone who is not taxed or exempt is considered outside the law. For example, non-resident persons who are not managed and controlled by the UAE, or do not have any permanent establishment in the UAE, or do not earn any UAE source income, or do not have any relationship in the UAE to drive UAE source income are not within the scope of UAE CT laws.
Exempt persons are covered under section 4 of the Act, which provides for government entities, government-controlled entities, persons engaged in extractive business, persons engaged in non-extractive natural resource business, qualified public benefit entities, qualified investment funds, pension funds and social security funds Not bound by law subject to the fulfillment of the conditions stipulated in the respective provisions of the law. Any legal person wholly owned by a government entity, government-controlled entity, qualified investment fund, pension fund, or social security fund is exempt from CT upon fulfillment of the conditions.
Corporation tax (CT) is required by law to be levied on taxpayers, who may be resident or non-resident.
Resident taxpayers include (i) legal persons incorporated in the UAE, including free zone businesses, (ii) legal persons established outside the UAE but controlled and administered by the UAE, (iii) any natural person carrying on business or commercial activities in the UAE, and (iv) any other person identified in a decision issued by Cabinet. Non-resident taxpayers include (i) a permanent establishment (PE) of a non-resident in the UAE, (ii) UAE-sourced income of a non-resident, and (iii) UAE-related non-resident individuals promoting UAE-sourced income. According to this definition, all limited liability companies, publicly held companies, public joint-stock companies, sole proprietorships, civil companies, etc. fall within the definition of taxable persons and shall be taxed accordingly.
Corporate taxpayers established in the UAE or established outside the UAE but controlled and managed by the UAE are subject to CT on their worldwide taxable income, while natural residents carrying out business in the UAE are obliged to pay CT for them. Taxable income related to a UAE business, even if the business earns income from the UAE. Non-resident taxpayers are obliged to pay tax on taxable income attributable to a permanent establishment, taxable income from UAE sources not attributable to a permanent establishment and taxable income attributable to a non-resident relationship in the UAE.
According to the legal scope mentioned above, one needs to assess one’s own position and plan the implementation of CT accordingly.
Mahar Afzal is the Managing Partner of Kress Cooper Management Consultants. The above is not official, but the author’s personal opinion based on the UAE corporate tax law. For any questions/clarifications please write to him: compliance@kresscooper.com
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