BSA Expert Perspective: What Does UAE Corporate Tax Law Mean For HNWI

In a recent report by Henley & Partners, the UAE will witness a huge movement of high net worth individuals in 2024, indicating over 6,700 millionaires set to move here this year. In an exclusive interview with OneArabia.me, Shamma Al Falahi, Head of Tax at UAE law firm BSA, provides insights into the UAE Corporate Tax Law and its implications for high net worth individuals (HNWIs).

Shamma is a former Federal Tax Authority Head of Tax Returns and Payments where she engaged in daily operations and led a main section of the tax sector. Highly experienced in complex tax matters, her skillset covers a range of topics including tax returns and refunds, voluntary disclosures, penalties and reconsiderations and general tax advisory work. The Corporate Tax Law, implemented in June 2023, applies to both juridical persons and natural persons, including HNWI. This article aims to provide a comprehensive overview of the law's provisions and practical implications for HNWI.

Understanding the scope

The Corporate Tax Law applies to natural persons, including HNWI, who conduct a business or business activity in the UAE. This includes individuals with unincorporated businesses, permanent establishments in the UAE, or UAE sourced income. However, certain types of income, such as employment income, personal investment income, and real estate investment income, are exempt from corporate tax.

Key Considerations for HNWIs

HNWI often have diverse income streams and substantial financial activities. A natural person becomes subject to Corporate Tax if their business activities generate a turnover exceeding Dh1 million within a Gregorian calendar year. Turnover refers to the gross income derived from all business activities before any deductions. The taxable income is the accounting income after necessary adjustments per the Corporate Tax Law. The applicable tax rates are 0% on the first Dh375,000 of taxable income and 9% on the portion exceeding Dh375,000.

Residency and Permanent Establishment

The tax obligations of non-Emirati individuals are not affected by their citizenship or residency status if their annual turnover exceeds Dh1 million for businesses conducted in the UAE. The law differentiates between resident and non-resident natural persons. A resident person conducts business or business activities in the UAE, regardless of their physical residence status. On the other hand, a non-resident person may be subject to corporate tax if they have a permanent establishment in the UAE or derive UAE sourced income.

Reliefs available to HNWIs

HNWIs with a turnover not exceeding Dh3 million can elect for Small Business Relief, which treats them as having no taxable income for the relevant tax period. Deductions can be made for certain expenditures, such as interest incurred for business purposes. However, personal expenses or amounts withdrawn from a business by a natural person are not deductible. Related party transactions must adhere to the arm's length principle.

Strategic Tax Planning for HNWIs

For HNWIs, strategic tax planning is crucial to optimize their tax positions. This involves leveraging allowable deductions, understanding the implications of related party transactions, and considering the impact of international tax treaties. Seeking expert advice is essential due to the complexity of HNWIs' financial arrangements and multiple income streams.

Compliance and Reporting

Compliance with the Corporate Tax Law is necessary for natural persons subject to corporate tax. This includes tax registration, submission of tax returns, and maintaining accurate financial records. Non-compliance can result in administrative penalties. Understanding the corporate tax obligations for HNWIs in the UAE is crucial as the country continues to evolve its tax landscape.

Additionally, considering Family Foundations can offer strategic benefits for succession planning and tax optimization, ensuring the long-term preservation and efficient management of family wealth. Expert advice and strategic tax planning are essential tools for HNWIs to effectively manage their tax liabilities.