Taxation of UAE Residents – Introduction
In the UAE, taxation of UAE resident, shall depend on their tax status. Generally, the following person are treated as a UAE resident for income tax purpose – Taxation of UAE Resident : –
- Legal person incorporated in the UAE;
- Natural person, engaged in business in the UAE, directly or through an unincorporated entity .
Natural person
A natural person may be a UAE resident , or a non-UAE resident. However, where such person is engaged in a business or a commercial activity in the UAE, whether directly or through an unincorporated entity, they would be treated as a resident person and liable to pay tax on their business income in the UAE .
Natural person carrying on direct business
A natural person may carry on business or commercial activity , either directly , or through an unincorporated partnership. For example, let’s say, Mr X, is engaged in Trading goods in the UAE, in his own name and he is tax resident of UAE. in such a case Mr X, will be liable to tax on his business income in the UAE.
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Natural person carrying on business through an unincorporated partnership
A natural person can also carry out business or commercial activity through an unincorporated partnership . in such a case, the natural person will also be taxed on the partnership’s income, because unincorporated partnerships are treated as fiscally transparent entities whereby the profits of these partnerships, are taxed in the hands of the partner, rather than being taxed in their own hands.
Legal entity incorporated in the UAE
Legal entity would generally refer to a company incorporated in the UAE, although there may be other forms of legal entity as well . A legal entity incorporated in the UAE , will always be treated as a tax resident of the UAE taxable on their worldwide income in the UAE.
Foreign legal entity deemed as a resident of UAE
If a legal entity is a foreign company, it is essential to consider whether such foreign company is managed and controlled in the UAE. If the foreign company is managed and controlled in the UAE, it will be treated as a deemed resident of the UAE. Once a foreign company is deemed as a resident of the UAE, it will also be liable to tax in the UAE on its worldwide income
Conclusion
The basis of taxation, will be governed by whether the person is a resident or a non-resident. If the person is a resident, one would need to determine, which income they are liable to tax on. Generally in respect of income of residents, which has suffered taxes in overseas jurisdiction, the resident is eligible for the foreign tax credit against the tax payable in UAE on such income.
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