Understanding the Taxable Person Status Under UAE Corporate Tax Law

The UAE introduced Corporate Tax effective from June 1, 2023. While many believe this tax only applies to companies, it also applies to individuals (called “natural persons”) who earn income through Business or Business Activities in the UAE. This includes freelancers, consultants, influencers, small business owners, and even non-residents earning income from UAE sources.

The objective of the Corporate Tax regime is to ensure that individuals conducting significant business activities contribute fairly to the tax system, without impacting those with minor or personal income sources. Many individuals mistakenly assume they are exempt, but if you run any business activity even without a formal company setup you may be subject to Corporate Tax if your earnings cross the threshold AED 1 million in a calendar year.

This detailed and simplified guide breaks down everything you need to know about the Corporate Tax as an individual in the UAE: when it applies, what income is taxed, what is exempt, how much tax you need to pay, and what compliance steps to follow.

Understanding these tax rules will help you:

• Avoid unexpected fines or penalties
• Structure your finances and pricing appropriately
• Plan your cash flow better
• Comply with UAE regulations and maintain good legal standing
  

Let’s dive into the key concepts and action steps to stay compliant.

Who Is a Natural Person?

A “natural person” is any living human being, regardless of age or residency. This is different from a company (which is a juridical person).

In the UAE, a natural person can become a Taxable Person if they:

• Carry out any Business or Business Activity in the UAE,
• Have a Permanent Establishment in the UAE (like a fixed office or agency), or
• Earn State Sourced Income (income that originates from UAE-based activities or customers).
  

You can be a resident or non-resident and still be subject to Corporate Tax depending on your situation.

When Does a Natural Person Have to Pay Corporate Tax?

Corporate Tax does not apply to all individuals, only to those conducting a Business or Business Activity and earning over a certain threshold.

The law states:

• If your total Business Turnover in the UAE exceeds AED 1 million in a calendar year, you are required to:
  
  • Register with the Federal Tax Authority (FTA),
  • File Corporate Tax Returns,
  • Pay Corporate Tax.
    

If your turnover is below AED 1 million, you’re not required to register or pay Corporate Tax, but it’s still recommended to keep basic records.

Examples:

• A freelance designer earning AED 1.2 million from UAE clients must register and pay Corporate Tax.
• An employed engineer with AED 500,000 salary and AED 200,000 from a side business is only taxed on the AED 200,000—but since it’s under AED 1 million, no registration needed.
  

What Income Is Taxed vs. What’s Not

✅ Taxable Income (if you exceed AED 1 million turnover):

• Freelancing (graphic design, copywriting, consulting, tutoring)
• Selling products online (e-commerce)
• Influencer income (sponsored content, affiliate sales)
• Side businesses or professional services (legal, financial, IT)
• Any regular income-generating activity done independently
  

🚫 Exempt Income (never taxed under Corporate Tax):

• Salary or employment income (from full-time or part-time jobs)
• Director fees (unless linked to other business activities)
• Dividends or capital gains from shares or investments
• Personal savings interest or bank interest
• Rental income (if not part of a licensed real estate business)
  

These exempt income types do not count towards the AED 1 million threshold.

Tax Rates for Individuals

Once your taxable business income goes above the AED 1 million threshold, the following Corporate Tax rates apply:

• 0% on the first AED 375,000 of taxable income
  
• 9% on the amount above AED 375,000
  

Example:
If your business income is AED 600,000 after deducting expenses:

• 0% on AED 375,000 = AED 0
  
• 9% on AED 225,000 = AED 20,250 Corporate Tax
  

You only pay tax on net taxable income, not gross revenue.

What Is Small Business Relief?

To ease the burden on small earners, the UAE introduced Small Business Relief, which allows qualifying individuals to be treated as having no taxable income.

Eligibility:

• Revenue must be less than AED 3 million for each relevant tax period
• Applies from 2024 to 2026
• You still need to register, even if you qualify for the relief
  

Do You Need to Register?

Yes—if your total turnover from business activities exceeds AED 1 million in a calendar year.

• Registration is with the Federal Tax Authority (FTA)
• Even if you are eligible for Small Business Relief, you must register
• One Tax Registration Number (TRN) is used for all your business activities
  

You don’t need to register if you:

• Only earn salary income
• Run a hobby or occasional side gig earning less than AED 1 million
  

What Expenses Can You Deduct?

You are allowed to deduct business expenses from your income to reduce your taxable income.

Expenses must be:

• Incurred wholly and exclusively for the business
• Not capital in nature (buying property or assets like vehicles)
• Compliant with arm’s length principles if dealing with Related Parties
  

Common Deductible Expenses:

• Marketing and advertising costs
• Office rent, coworking spaces
• Software subscriptions
• Travel for business
• Phone and internet (business portion)
• Salaries of employees or contractors
  

Non-Deductible:

• Personal spending
• Salary you pay yourself (as a sole proprietor)
• Fines or penalties
  

How to Calculate Your Tax

Steps:

1. Add up all taxable business income
2. Subtract allowed expenses
3. Apply the 0% and 9% tax rates
   

You may use cash accounting (record when paid/received) if your revenue is under AED 3 million.

What Is State Sourced Income?

This includes income earned from within the UAE even if you are not living in the UAE.

Examples:

• Royalties or licensing fees from UAE companies
• Payments for services delivered in the UAE
• Interest from UAE bank accounts
• Dividends from UAE businesses
  

If the AED 1 million threshold is crossed, this income may be taxable.

Withholding Tax is currently 0%, but you may still be taxed as a Non-Resident Taxable Person.

Related Parties & Connected Persons

If you’re dealing with:

• Your spouse or family members
• Your own company
• Your business partner or their family
  

These are Related Parties, and any payments or transactions must be:

• Fair and at market value (arm’s length)
• Documented properly in case of audits
  

This avoids tax manipulation and ensures transparency.

Filing & Compliance Timeline

• Tax Period: January 1 – December 31 (calendar year)
• Tax Return Deadline: 9 months from year-end (by September 30)
• Financial Statements:
  
  • IFRS or IFRS for SMEs (if revenue under AED 50 million)
    
  • Cash basis accounting allowed if under AED 3 million
    
• Audit Requirement: Only if revenue exceeds AED 50 million
  

Even if you have no taxable income, you must file a “nil” return if registered.

Conclusion

Corporate Tax in the UAE now includes individuals who conduct business activities. Here’s what to remember:

• You only pay tax if you earn over AED 1 million from business
• Salary, investment, and most real estate income is exempt
• If eligible, use Small Business Relief to reduce tax burden
• Keep good records, register on time, and stay compliant
  

Need Help?
We offer personalized Corporate Tax consultation for freelancers, consultants, and small business owners. Contact us today for a free assessment.

Corporate Tax FAQ for Individuals in the UAE

1. Who is a “natural person” under Corporate Tax?

A natural person is just an individual (not a company). You are considered a taxable person if you run a business or freelance activity in the UAE, even if you’re not a UAE citizen or resident.

2. How is tax residency determined for individuals?

Tax residency is based on doing business in the UAE, not your passport or visa. Even if you live abroad, you may still be taxed if you earn income from UAE clients or sources.

3. What kind of income is taxed?

Only business or freelance income is taxed—and only if your total income exceeds AED 1 million in a year..

4. What income is exempt from Corporate Tax?

You don’t pay tax on:

• Wages (salaries or benefits from a job)
• Personal investment income (stocks, dividends, etc.)
• Real estate income, unless you operate a real estate business through a license

5. What is a “business” or “business activity”?

Any ongoing work or service done for money, such as consulting, freelancing, selling goods online, or offering professional services.
Even side jobs count if done regularly and independently.

6. How is Turnover calculated, and what is the tax rate?

Turnover is your total gross income from business (not including exempt income).
Tax rates:

• 0% on the first AED 375,000 of profit
• 9% on the rest
  If your Turnover is below AED 3 million, you may qualify for Small Business Relief (pay 0% tax but still need to register).

7. Can I deduct business expenses?

Yes. You can deduct costs like rent, internet, software, and tools used for work.

• Interest expenses are allowed if they are for business.
• Personal withdrawals, like paying yourself, are not deductible.

8. Who are Related and Connected Persons?

These include:

• Family members (up to cousins and grandparents)
• Your spouse or children
• Companies you own 50% or more of, or control
  Deals with them must follow the arm’s length principle (fair market terms).

9. What are my Corporate Tax responsibilities?

If your Turnover exceeds AED 1 million per year, you must:

• Register with the FTA
• File a tax return each year (by Sept 30 of the next year)
• Prepare financial statements (IFRS or simplified accounting):
  • If under AED 3 million: you can use cash accounting
  • If over AED 50 million: audited statements are mandatory
• Deregister if you close your business permanently