Can Non-Residents Engaged in UAE Business Activities Be Subject to Corporate Tax?

In March, we emphasized the need to distinguish between UAE’s tax residency regulations and being deemed a ‘resident person’ for corporate tax purposes.

Contrary to the misconception that an individual is exempt from UAE corporate tax without a primary or permanent residence in the UAE or staying less than 90 days, the Federal Tax Authority clarified that physical residence, whether by citizenship or residency visa, is not the criterion for determining corporate tax residency or taxability.

Individuals engaging in a ‘business’ or ‘business activity’ in the UAE are considered ‘resident persons’ and subject to taxation, provided their turnover exceeds Dh1 million annually. The accuracy of immigration status, visas, work permits, and business licenses does not affect tax implications.

The scope extends beyond ‘business’ to include ‘business activity,’ potentially triggering corporate tax liability. ‘Business’ encompasses any regular, independent activity, such as industrial, commercial, or vocational activities, while ‘business activity’ considers short-term activities conducted in the UAE.

Determining factors include the location of individuals contributing to services or assets supporting service rendering in the UAE. For instance, a person regularly providing architectural services in the UAE is considered a ‘resident person’ subject to the Dh1 million threshold.

Overseas individuals, including performers, sportspersons, and celebrities, need to assess whether their activities constitute a ‘business activity’ in the UAE, potentially obligating them to corporate tax compliance. Tax treaties with other countries may influence tax obligations.

Where overseas individuals are not engaged in a ‘business activity,’ their UAE-sourced income might be subject to withholding tax. The current withholding tax rate is 0%.

The guide clarifies that certain activities, like raffle winnings or game show prizes, are not typically considered ‘business’ or ‘business activity.’ However, sports personalities earning income in other countries often encounter similar tax considerations on winnings.

Resident individuals engaged in independent business activities, such as doctors, artists, or social media influencers, should assess tax implications. Golden Visa holders earning income other than wages or investment income need special attention.

Individuals and professionals should be aware of their tax obligations, seeking timely consultations for a smooth transition into the tax era with confidence.