The Corporate Tax Law (Federal Decree-Law No. 47 of 2022), enacted on October 3, 2022, and published in the UAE’s Official Gazette on October 10, 2022, brings federal taxation to corporations and corporate earnings. Effective June 1, 2023, this law significantly transforms the UAE’s tax framework. It offers valuable insights into the registration process, including criteria and deregistration procedures, making it an invaluable resource for understanding UAE’s corporate tax structure.
Navigating Corporate Tax Registration in the UAE
In the UAE, individuals determine their liability under the Corporate Tax system. Those meeting the criteria – citizens or foreign residents with a permanent business setup – must register.
Additionally, businesses exceeding AED 1 million in revenue, excluding personal earnings, must register. This process ensures compliance with tax laws, facilitating filing and payment obligations. It serves as a self-assessment tool, aiding individuals in assessing tax liabilities against set benchmarks.
Understanding Taxable Entities for Corporate Taxation in the UAE
Taxable Persons under UAE Corporate Tax can be individuals or entities, excluding Non-Resident Persons with solely State Sourced Income and no UAE Permanent Establishment.
The Corporate Tax Law operates on self-assessment, necessitating registration for Corporate Tax Services by eligible natural persons. Residents engaged in UAE business activities are categorized as Taxable Persons.
Non-residents may also qualify as Taxable Persons if they possess a UAE Permanent Establishment or generate State Sourced Income. Determination factors include residency, business operations, and adherence to Double Taxation Agreements.
State Sourced Income for Non-Resident Persons could be subject to Withholding Tax (presently 0%). Mandatory Corporate Tax registration applies to natural persons surpassing AED 1 million in total Turnover.
Defining Business and Business Activity
The UAE’s Corporate Tax Law offers detailed definitions of business and business activity, crucial for assessing corporate tax obligations. A company’s tax liability primarily hinges on its business activity, encompassing all transactions and operations.
In contrast, business refers to independently conducted, ongoing activities falling into categories like commercial, industrial, agricultural, vocational, professional, service, or excavation.
Inclusion of Taxable Income
Taxable Income encompasses earnings derived from domestic as well as international sources that are linked to a natural person’s business engagements within the UAE.
An essential determinant in establishing this linkage is the geographical location wherein contracting, business development, or production activities occur. This ensures a comprehensive assessment of income derived from various operational facets within and outside the UAE, facilitating effective taxation evaluation and compliance.
Corporate Tax Registration Criteria and Relevance
The eligibility for corporate tax registration in the UAE is contingent upon a natural person’s business activities yielding a total turnover exceeding AED 1 million within a Gregorian calendar year.
Turnover, calculated as gross income minus expenses, serves as a pivotal benchmark determining the applicability of corporate tax. Compliance mandates registration for corporate tax if these criteria are met, ensuring adherence to regulatory obligations.
Corporate Tax Exemptions in the UAE
Certain income categories, including wages, personal investment income, and real estate investment income, are exempt from corporate tax obligations in the UAE.
Natural persons engaged in activities generating such income, without conducting business or business activities within the United Arab Emirates, are not mandated to file for corporate tax. Understanding these exemptions empowers individuals to navigate corporate tax liabilities with finesse and strategic acumen
UAE natural persons enjoy Corporate Tax exemptions across various income categories:
Wage Exemption: Compensation received by employees, whether in cash or kind, remains untaxed.
Income from Personal Investments: Profits from personal investments are exempt from taxation if they are not conducted on a commercial basis.
Real Estate Investment Income: Income derived from land or real estate transactions not requiring a license remains untaxed.
Determining Tax Liability:
– No Corporate Tax is applicable if the total turnover is below AED 1 million.
– Compliance with tax regulations ensures informed decision-making.
Understanding Total Turnover Calculation:
– Total turnover from all UAE-based businesses within a Gregorian year is assessed for Corporate Tax purposes.
– Excluded income sources include wages, personal investments, and real estate transactions.
Simplified Tax Period:
– The tax period aligns with the Gregorian calendar year, running from January 1 to December 31.
– For individuals commencing business activities within a year, the AED 1 million threshold evaluation must be completed by December 31, 2024.
– Tax returns must be filed by September 30, 2025, upon successful registration.
Corporate Tax Registration Made Easy:
– The EmaraTax platform simplifies the Corporate Tax registration process.
– Existing login credentials for Value Added Tax or Excise Tax registrants are applicable.
– New users can set up their credentials with guidance available through an accessible handbook on the FTA website.
– Assistance is also provided via a helpdesk at 80082923 during business hours.
Effortless Tax Registration Procedure:
– Submit an application and necessary documents to the FTA for Corporate Tax registration.
– The FTA reviews the application and decides on acceptance or denial.
– Upon approval, a Tax Registration Number is provided.
– The FTA aims to process applications within 20 business days, with requests for additional information addressed within the same timeframe.
– Failure to submit requested information within the allotted time necessitates a fresh application.
Key Information and Documents for Tax Registration:
- Contact details
- Passport
- Emirates ID
- Sole establishment details
- Tax registration details
- Bank account details
Prepare and upload these essentials for a swift and efficient Tax Registration process.
Procedural Aspects for Corporate Tax Registration
1. Already Registered for Excise and Value Added Tax
If a natural person is already registered for excise tax and/or VAT, they must still register separately for corporate tax if applicable.The Corporate Tax Registration Number will be unique but similar to existing tax registration numbers, differentiated by a distinct last digit.2. Tax Agents for Corporate TaxTax agents registered with the FTA who currently manage VAT and/or Excise Tax obligations can also represent individuals for corporate tax.These tax agents can continue their role in handling corporate tax duties for their clients.3. Not Registered for VAT and Excise TaxNatural persons exempt from VAT and excise tax must still register for corporate tax if they meet the criteria.Following Corporate Tax Registration Requirements
Once a natural person registers for corporate tax in the UAE, there are several ongoing requirements they must fulfill to ensure compliance:
1. Tax Return Filing and Payment
– Deadline: Tax returns must be filed, and corporate tax payments must be made within nine months following the end of the tax period.
– Accuracy and Timeliness: It is crucial to ensure that all tax returns are accurate and submitted on time to avoid penalties
2. Record Retention
– Duration: All supporting records and documents related to the taxpayer’s position must be retained for seven years after the relevant tax period.
– Documentation: This includes financial statements, invoices, receipts, and any other documents that substantiate the tax returns filed.
3. Up-to-Date Registration Data
– Maintenance: Keep all registration details current to ensure compliance.
– Notification: Inform the Federal Tax Authority (FTA) of any changes to registration information within 20 business days to avoid penalties. This includes changes in business address, contact details, and any other pertinent information.
4. FTA’s Power to Register
– Proactive Registration: The FTA has the authority to register a natural person for corporate tax if it determines that they should have registered but have not done so.
– Effective Date: Registration by the FTA will be effective from the relevant date when the individual should have initially registered.
– Right to Appeal: Natural persons have the right to appeal the FTA’s decision to register them if they believe it to be incorrect.
By adhering to these requirements, natural persons can maintain compliance with the UAE’s corporate tax regulations, avoiding potential fines and legal issues. Regular updates and diligent record-keeping are essential practices to stay in good standing with the FTA.
Key Aspects of Corporate Tax Deregistration in the UAE
Deregistration is necessary when a natural person is no longer subject to corporate tax, typically due to the cessation of business activities.
Single Tax Registration Number (TRN)
– All business operations are covered under a single TRN.
– Deregistration takes effect only after all business activities have ceased.
Application Process
– The deregistration application must be submitted within three months of ceasing business activities, usually by the natural person or their legal representative.
– To get approval, all tax returns must be filed, and corporate tax and penalties must be paid.
Turnover Below AED 1 Million
– If the turnover is less than AED 1 million, the individual’s registration remains active, and a “nil” tax return must be submitted if applicable.
Denial Conditions
– Failure to meet all prerequisites results in the denial of the deregistration request.
– If new business activities commence within the same tax period as the application, the deregistration request is denied.
By understanding and following these key aspects, natural persons can ensure a smooth and compliant corporate tax deregistration process in the UAE.
Fulfilling Corporate Tax Obligations Upon Death
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When a natural person passes away, their status as a Taxable Person ceases. However, certain obligations regarding corporate tax must be met:
– Corporate tax liabilities must be settled from the deceased person’s estate before heirs receive their share.
– Heirs become responsible for any remaining corporate tax obligations after the estate’s distribution.
– Heirs are not relieved of tax liabilities until the Federal Tax Authority (FTA) issues a clearing certificate, indicating that all tax obligations have been met.
By addressing these obligations promptly, heirs can ensure compliance with corporate tax regulations following the natural person’s death.