UAE Corporate Tax: Will payments outside of employment contracts come under tax?

Employment contracts will have a defining say in whether an individual’s income comes under the purview of the UAE Corporate Tax after the Federal Tax Authority issued its latest update.

Individuals conducting a business or related activity and with annual turnover exceeding Dh1 million are required to comply with the laws.

The concept of wage has been clarified in the latest tax guide, which is what’s given to an employee for their services under the labour contract, whether in cash or in kind, and includes allowances, bonuses and any other benefits.

The emphasis on employment contracts is conspicuous.

Any payment to the individual outside of the employment contract seems to carry the risk of not being considered as part of the entitled wage. The salary in these circumstances is a question to be determined on a case-by-case basis.

For business owners proposing to draw salaries from their multiple companies, the feasibility of the individual working under multiple employment contracts still requires clarity. The new FTA tax guide states that director fees will not be considered as a business or business activity, and therefore would not be subject to corporate tax.

Personal investment activity

Personal investment income does not include activity that could be considered as a business under the Commercial Transactions Law. Among the many activities listed as a commercial business, attention is required for:

Trading in shares and securities by persons, if considered as speculative, may require them to comply with corporate tax rules. The profits/loss from such activities would be irrelevant. A fund corpus of Dh10,000 put through 100 times in the trading cycle, for instance, during a calendar year could easily cross the tax registration threshold of Dh1 million in annual revenue.

Transactions in virtual currencies, non-fungible tokens and carbon credits would require a detailed evaluation for tax implications. One needs to examine if virtual assets could also include services relating to them such as exchange houses.

Place of business or business activity

The income earned from the business or business activity conducted in the UAE falls under the new tax. Income from short-term activities could also be taxable as transaction/activity conducted in the course of business.

Determining the place where the business or business activity is conducted may become intriguing. The usual residence of the person, source of income, or the place of actual commercial activity is not consequential. The person conducting the business may be residing in UAE or outside. The income could be earned from UAE customers and/or from overseas customers.

A physiotherapist, singer/actor/musician, an influencer, or a sportsman may receive requests to travel and provide services in other countries. If such requests are due to the individual’s work in the UAE, the income earned from activities performed elsewhere could still be related to activities conducted in the UAE.

If you do not own a company or if you are a professional such as doctor or lawyer, it is very likely that you have not paid much attention to the UAE corporate tax. You cannot afford not to any more. It is imperative to examine the quantum as well as the nature of your income to determine the corporate tax implications on you as an individual.