Understanding Taxable Persons in the UAE: A Comprehensive Guide

The UAE has emerged as a global business hub, attracting entrepreneurs and corporations from around the world. With the introduction of corporate tax and the established Value Added Tax (VAT) system, it is crucial for businesses and individuals to understand who qualifies as a taxable person in the UAE.

Who is a Taxable Person?

A taxable person in the UAE refers to any individual or entity that is required to register for tax purposes and fulfill tax obligations under UAE law. This classification applies to VAT and Corporate Tax, and understanding the distinction is key for compliance.

1. Taxable Persons Under VAT

The UAE introduced Value Added Tax (VAT) at a standard rate of 5% on January 1, 2018. Under the VAT regime, a taxable person includes:

1. a) Businesses & Individuals

• Any business entity or individual engaged in economic activities with an annual taxable turnover exceeding AED 375,000 must register for VAT.
• Businesses with turnover between AED 187,500 and AED 375,000 may opt for voluntary registration.
• Freelancers and self-employed individuals meeting the threshold also qualify as taxable persons.

1. b) Non-Resident Entities

• Any foreign business supplying goods or services in the UAE must register for VAT if no local agent is handling tax obligations on their behalf.

2. Taxable Persons Under Corporate Tax

From June 1, 2023, the UAE introduced Corporate Tax (CT) at a rate of 9% for businesses meeting certain criteria. A taxable person under corporate tax includes:

1. a) Resident Persons

• Companies incorporated in the UAE are automatically taxable persons.
• Foreign companies with a permanent establishment (PE) in the UAE are subject to corporate tax.
• Individuals engaged in business activities generating taxable income above a defined threshold.

1. b) Non-Resident Persons

• Foreign companies with a PE in the UAE or earning UAE-sourced income may be liable for corporate tax.
• Entities earning income from UAE sources but without a permanent establishment may be subject to withholding tax.

Exempt and Non-Taxable Persons

Certain entities are exempt from taxation or have specific reliefs under UAE law, such as:

• Government entities and government-controlled organizations.
• Public benefit organizations (subject to approval).
• Qualifying free zone entities meeting compliance conditions.
• Small businesses under the Small Business Relief Program.

Responsibilities of a Taxable Person

If classified as a taxable person, an entity or individual must:

• Register for VAT or Corporate Tax as per the relevant thresholds.
• Maintain financial records for at least five years.
• File periodic tax returns and ensure timely payments.
• Comply with UAE tax laws to avoid penalties.

Conclusion

Understanding taxable persons in the UAE is crucial for businesses and individuals to ensure compliance with VAT and Corporate Tax regulations. Whether you are a local company, freelancer, or foreign entity operating in the UAE, staying informed about tax obligations will help you navigate the UAE’s evolving tax landscape efficiently.

For expert tax consultation and compliance support, contact BIZZROST CONSULANTCY to assess your business needs.