Corporate tax: Will global entertainers, athletes be taxed on their UAE shows?

Take a moment to imagine the look of absolute shock on your favorite actor’s face while playing a character.

Your imagination could soon become a real-life event as these actors and celebrities assess the impact of UAE corporate tax on the entertainment industry. The tax issue has drawn interest from the entertainment and sports industries.

Tax treaties between the UAE and other countries (India or the UK) govern the tax obligations of entertainers who are resident in these other countries but perform in the UAE. Income derived by these overseas individuals from performing arts activities in the UAE is taxed in the UAE.

Such income is still taxable in the UAE, even if it does not accrue to the entertainer but to another person – for example, the overseas company that employs the entertainer. Since tax treaties grant the UAE taxing powers, we should look at the scope of domestic tax laws.

Individuals carrying out business activities in the UAE – to be specified in a Cabinet decision – will be taxed under UAE corporate tax. Although there are no personal taxes in the UAE, corporate taxes still apply to certain business activities carried out by individuals here.

Taxability is independent of an individual’s nationality or residence in the UAE.

The range of entertainers is not limited to movie actors. While the tax treaty does not contain any exhaustive list of entertainers, it does cover individuals who work as theater, film, radio or television entertainers or musicians.

Any individual engaged in a similar occupation in the UAE may also be subject to UAE taxation.

A question may arise as to whether a one-off performance in the UAE will incur corporate tax if the entertainer is not regularly present in the UAE. This has become a contentious issue, which has been resolved under tax law. Questions about the scope of the event – ​​whether it was for the public or a private film recording (which has not yet been released to the public) – have been resolved under European tax law.

However, it must be checked whether the entertainer earns income to appear as a brand ambassador, attend events or take photos, which in the UAE will still be covered by corporate tax.

The next time a movie sequence is recorded in the UAE or a singer performs at a concert, the tax implications must be considered even if payment is received in the home country.

The sports industry is not immune to corporate taxation either. The above taxation status that applies to entertainers also applies to athletes performing sports activities in the UAE.

Back in 2020, we discussed the impact of VAT on cricketers of the respective private teams of the Indian Premier League (IPL) playing in the UAE. Recently, two IPL players were fined 100% of the match fee. Penalties are calculated to reflect players receiving contract payments for their respective IPL teams.

Corporate tax may become an additional compliance point for the sports industry in the future.

The upcoming corporate tax is distinct from VAT, which offers UAE payers an alternative Reverse Charge Mechanism (RCM) to settle VAT liabilities of overseas entertainers.

Corporate tax law does not have any immediate alternatives for such individuals. Corporate tax law has a concept of withholding tax deducted by UAE payers. However, withholding tax does not appear to be a substitute for taxpayer obligations.

Additionally, withholding tax may not apply to individuals conducting business in the UAE, as such individuals are not considered “non-residents” under CT law.

Taxing entertainers/athletes is a global issue. Various countries have developed comprehensive domestic policies to address this issue. For example, in India, payments made for such events are subject to a 20% withholding tax and entertainers/athletes are not required to register for tax separately.

In addition, a specific exemption for filming in India is provided to non-residents

UAE corporate tax currently does not provide any exemptions for the entertainment or sports industries. With the UAE becoming a growing hub for these two industries, tax policies are expected to address this across the board.

We may find the answer in a Cabinet decision on the business activities that individuals engage in. The entertainment industry as a whole should be aware of the UAE tax implications for activities conducted in the UAE.