Corporate Tax (CT) is a form of direct tax as compared to Value Added Tax (VAT) which is considered as an indirect tax.

Direct Taxes like CT are levied and recovered directly from the businesses on which it is imposed. Indirect taxes like VAT are also levied on businesses. However, the businesses can recover it from their customers. Accordingly, it is the customers who incur the burden of indirect taxes.

Business Activities – Legal entities vs Individuals

CT will apply to all UAE businesses and commercial activities. One exception from CT will be the extraction of natural resources.

It appears that all activities undertaken by a legal entity (such as companies) will be deemed as “business activities” and hence covered under CT. However, dividends and capital gains earned by a UAE business from its specified ‘qualifying shareholdings’ will be exempt from CT.

On the other hand, foreign entities and individuals will be subject to CT only if they conduct a trade/business in the UAE in an ongoing or regular manner.

Impact on Individuals

First things first, CT will not apply on an individual’s salary and other employment income (both public and private sector). Further, interest and other income earned from bank deposits or saving schemes will also not be subject to CT.

Dividends, capital gains and other income earned from owning shares or other securities in personal capacity will also be outside CT regime.

However, if an individual has (or required to have) a business licence/permit including a freelance license/permit, the individual’s activities could be treated as ‘business’ and subject to CT.

It has also been clarified that individual’s investment in real estate in their personal capacity should not be subject to CT if a commercial license/permit is not required.

One of the interesting issues would be to see if an individual who owns and rents out houses/apartments on a regular basis would be covered by CT for the rental income.

Businesses cannot pass on the burden of direct taxes to their customers.

Source : Khaleej Times