The introduction of the UAE Corporate Tax regime has brought significant changes to how income from business activities is taxed—especially for individuals operating under trade licenses. Whether you’re a freelancer, sole proprietor, or an individual investor managing a commercial activity, understanding how tax laws apply to you is now crucial.
This blog provides a comprehensive guide on how the new Corporate Tax Law impacts individuals who run businesses under trade licenses, what obligations they hold, and how they can remain compliant while optimizing their tax position.
1. Who Is Considered a Taxable Person in the UAE?
Under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, a “Taxable Person” includes juridical persons (like LLCs) and natural persons (i.e., individuals) engaged in business activities in the UAE.
Thus, if an individual holds a valid UAE trade license and earns income from business activities (including consultancy, services, or trading), they are generally regarded as a Taxable Person and may be subject to Corporate Tax.
2. Income Threshold for Corporate Tax on Individuals
For individuals operating a business under a trade license, Corporate Tax applies only when their net business income exceeds AED 375,000 per year. Income below this threshold is exempt.
Note that this applies to net income after deducting allowable expenses and not gross turnover.
- Income below AED 375,000 = 0% Corporate Tax
- Income above AED 375,000 = 9% Corporate Tax on the excess
This threshold provides relief for small entrepreneurs and sole practitioners.
3. What Qualifies as a Business Activity?
Any continuous, independent activity that is conducted for the purpose of generating income is considered a business activity. Examples include:
- Operating a consultancy firm
- Freelance design, IT, or marketing services
- Online sales and trading
- E-commerce businesses
- Property leasing and management (if conducted under a license)
If such activities are conducted under a trade license, the income is likely subject to Corporate Tax rules.
4. Exemptions for Purely Employment Income
It’s important to distinguish between business income and employment income. The UAE Corporate Tax Law clearly states that income from employment is not subject to Corporate Tax.
However, individuals who earn both salary and licensed business income must report the latter for tax purposes.
5. VAT and Corporate Tax: Separate But Related
Many licensed individuals are already registered for VAT. While VAT and Corporate Tax are separate systems, they often overlap:
- VAT is applied to the sale of goods and services (above AED 375,000 turnover)
- Corporate Tax applies to net profit (above AED 375,000)
PEAK Business Consultancy Services can help you streamline both VAT and Corporate Tax filings, minimizing errors and maximizing compliance. Visit https://www.peakbcs.com/ to schedule a consultation.
6. Tax Filing Obligations for Individuals
Individuals with taxable business income must register with the Federal Tax Authority (FTA) and submit annual Corporate Tax returns. Key obligations include:
- Corporate Tax registration on the FTA portal
- Preparation of audited or well-maintained financial statements
- Annual tax return submission within 9 months of the end of the financial year
- Payment of any Corporate Tax due
Non-compliance may result in penalties and loss of reputation, especially for professionals offering services in regulated sectors.
7. Deductible Expenses for Individuals
Just like companies, individuals can deduct business-related expenses when calculating taxable income. These may include:
- Office rent and utilities
- Marketing and advertising costs
- Software subscriptions and professional tools
- Employee salaries (if applicable)
- Travel and transportation for business purposes
Keeping accurate records and invoices is essential for defending deductions during audits.
8. PEAK Business Consultancy Services – Your Tax Compliance Partner
Whether you’re a freelance professional, small business owner, or independent trader, managing VAT and Corporate Tax obligations can be daunting. That’s where PEAK Business Consultancy Services comes in. We provide specialized support to individuals operating under trade licenses in the UAE, including:
- Tax registration with the FTA
- Bookkeeping and financial statement preparation
- Identifying deductible expenses and tax-saving strategies
- Filing annual Corporate Tax and quarterly VAT returns
- Assisting with audits and tax disputes
Explore our services and book a consultation at https://www.peakbcs.com/.
9. Implications for Free Zone Individuals
Individuals operating under Free Zone licenses may also benefit from the 0% Corporate Tax rate—if they meet the criteria of a Qualifying Free Zone Person. These include:
- Earning qualifying income from eligible activities
- Maintaining adequate substance within the Free Zone
- Complying with transfer pricing rules (if applicable)
If these conditions are not met, the individual’s income could be taxed at the standard 9% rate above AED 375,000.
10. When Should Individuals Seek Professional Advice?
You should consult a tax advisor if:
- Your business income exceeds or is close to AED 375,000
- You have both salaried and business income
- You run multiple licensed entities
- You need help maintaining financial records
- You are unsure about deductible expenses or exemptions
PEAK Business Consultancy Services offers personalized advisory to individuals in all Emirates and Free Zones, ensuring peace of mind and optimal tax planning.
11. Conclusion
With the UAE’s Corporate Tax regime now in full effect, individuals operating businesses under trade licenses must take proactive steps to understand and comply with their tax obligations. While the law offers thresholds and reliefs for smaller earners, ignorance or poor planning can lead to non-compliance and penalties.
To avoid pitfalls and optimize your tax outcome, trust PEAK Business Consultancy Services—your expert partner in VAT and Corporate Tax for individuals. Visit https://www.peakbcs.com/ to schedule a consultation and take charge of your financial future.
