Taxability of Natural Persons in the UAE: Explained

Introduction
With the rollout of the UAE Corporate Tax Law (CT Law), many individuals have questioned how it affects them personally. Initially, the law clarified that it would only apply to natural persons if they conducted business or business-related activities within the UAE and earned over AED 1 million annually in gross revenue from those activities.
To address the confusion, the Federal Tax Authority (FTA) issued a detailed guide, which we’ve broken down into a simplified summary below.

Who Falls Under the Scope of CT Law?
According to the FTA, Corporate Tax is applicable to natural persons only when they engage in business activities within the UAE. Tax may also be due if the individual has a permanent establishment in the country or earns income sourced from the UAE.
If a person conducts business solely outside the UAE, that income remains untaxed under CT Law. Moreover, unless UAE-based earnings exceed AED 1 million in a calendar year, no registration or tax filing is required.
Legal representatives will be responsible for tax matters concerning minors or individuals incapable of managing their affairs.
It’s also important to note that people acting as directors or shareholders aren’t considered business owners in their individual capacity. Any payments received as salaries, director fees, or similar are classified as employment income and are not subject to CT.

How Turnover Is Determined
Under CT Law, a sole proprietorship and its owner are treated as one and the same. That means the natural person—not the business license—is considered the taxable entity.
For instance, a physiotherapist operating a clinic in the UAE, while occasionally serving clients in other Gulf countries due to referrals from their UAE practice, will be taxed on that Gulf income, as it stems from UAE activities. Earnings from their home country, however, remain outside the UAE CT scope.
Turnover calculations must include any in-kind compensation, valued at market rates. Freelance work performed in the UAE also qualifies as taxable business income.
However, certain income types are always exempt from Corporate Tax for individuals:

• Employment and salary earnings

• Income from personal investments like dividends or capital gains

• Real estate income earned personally (not via business)

Interestingly, one’s visa or trade license does not influence CT residency. Even a person on a tourist visa earning over AED 1 million through local operations will be treated as a tax resident.

Deductions and Non-Deductible Costs
While most business-related expenses can be claimed as deductions, some do not qualify. For example, amounts withdrawn by the owner from their business—even if labeled as wages—cannot be deducted for tax purposes.
That said, individuals may fully deduct interest expenses as long as they are solely incurred for business operations.

Small Business Relief Provision
Natural persons with total turnover under AED 3 million may qualify for Small Business Relief, helping them avoid tax liability. Still, once the AED 1 million threshold is exceeded, registration and ongoing compliance are required, even if tax is not due.

Transfer Pricing and Related Party Transactions
Transfer pricing rules also extend to individuals engaged in business, particularly when transacting with Related Parties. In the case of unincorporated partnerships, partners are seen as Connected Persons—but the rules apply only to the paying party, not the recipient.

Deregistration Rules
If a registered individual’s revenue drops below AED 1 million, they cannot simply deregister unless all business activity is ceased. A formal deregistration must be filed within three months of stopping the business.
Even when no tax is payable in a given year, a NIL return must still be submitted if the business remains active. For individuals with multiple ventures, deregistration is only possible after closing all operations.

Conclusion
The FTA’s recent guidance has demystified the tax obligations for natural persons under UAE Corporate Tax Law. Whether you’re self-employed, a freelancer, or operating through a sole proprietorship, understanding your position is essential to remain compliant and avoid unexpected penalties.
If you’re unsure how these rules apply to your situation, it’s best to seek professional advice.

Need personalized guidance on UAE Corporate Tax?
Connect with AKW Consultants—our tax experts can help you navigate the rules with confidence.