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Taxation of UAE Residents

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May 16, 2022

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5 mins read

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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Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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