UAE business owners to be subject to corporate tax only if their turnover exceeds Dh1m

The UAE's Ministry of Finance has confirmed that business owners in the country will be subject to corporate tax only if their turnover in a calendar year exceeds Dh1 million ($272,294).

The Cabinet Decision No. (49) of 2023 aims to clarify the application of the corporate tax regime for residents and non-residents and “ensure that only business or business-related activity income is taxed”, the ministry said on Wednesday.

It also confirmed that personal income, notably from employment, investments and real estate (without licensing requirements) is not subject to corporate tax.

For example, if a UAE resident operates an online business and the combined annual turnover from the business exceeds Dh1 million, under the new decision, that income would be subject to corporate tax.

However, if the resident also earns income from a rental property and personal investments, these sources of income would not be subject to the tax, as they fall under the out-of-scope categories, the ministry said.

“The new Cabinet Decision demonstrates the UAE's commitment to maintaining a clear and competitive tax framework for both local and foreign individual investors,” said Younis Al Khouri, undersecretary at the Ministry of Finance.

“By simplifying the corporate tax system, the UAE continues to foster an attractive business environment that supports the growth of small businesses, start-ups and the overall economy.”

In January last year, the UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent starting from the financial year beginning on or after June 1, 2023.

It brought the income of companies exceeding Dh375,000 within the taxable bracket.

Taxable profits below that threshold will be subject to a 0 per cent rate.

There will be no tax on personal incomes “from employment, real estate and other investments, or on any other income earned by individuals that does not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE”, the ministry said at the time.

In April, the ministry also clarified that small businesses in the UAE with revenue of Dh3 million or less can benefit from a new corporate tax relief programme.

The ministerial decision on Small Business Relief “treats the taxable person as not having derived any taxable income in a given tax period where the revenue did not exceed a certain threshold”, the ministry said.

Taxable persons who are resident in the country can claim Small Business Relief when their revenue in the relevant and previous tax periods is below Dh3 million for each period.

Once a taxable person exceeds that threshold in any tax period, they will no longer be eligible for the scheme.

The threshold will apply to tax periods starting on or after June 1, 2023 and will continue to apply only to subsequent tax periods that end before or on December 31, 2026.