The upcoming implementation of a federal tax on business profits in the UAE from June 2023 has led to some confusion regarding its impact on private individuals and residents.
This comprehensive guide by our financial experts will address the most common queries raised by expats and citizens on topics such as:
- Tax applicability on salaries/gig income
- Change in returns from investments
- Overseas assets declaration needs
- Tax optimization strategies
Let’s analyse each aspect in detail:
Does the Corporate Tax Apply to Salaries or Gig Earnings?
- The new 9% federal tax is levied only on the net profits companies generate from their UAE operations
- Unlike several countries, the UAE does not yet have personal income tax rules that allow direct taxation of employment income or freelance earnings
- So if your regular monthly salary is AED 20,000 it will remain fully unaffected. No need to worry about any deductions due to corporate tax!
In summary, take home pay, contracting fees and end of service benefits have no direct tax impact from the new law.
What is the Effect on Investment Gains and Rental Yield?
- The existing bank interest rates or returns you earn from fixed deposits, bonds, mutual funds remain unchanged
- These pay-outs are not subject to 9% tax deduction at source so you enjoy full quoted returns
- However, any share dividends distributed by UAE firms will have corporate tax applied first before disbursal
- Rental yield also only taxed at owning company level before landlord distribution
So while corporations pay more, personal passive investment returns mostly remain tax-free for residents.
Do Global Assets Need to be Declared?
Many expats have international assets – real estate, shares, retirement accounts. This raises declaration doubts:
- The new corporate tax does not change rules regarding offshore assets/income disclosure
- For UAE taxation or otherwise, residents have no obligation to routinely declare foreign assets
- Overseas income remittance into the country also continues to remain tax-free
Clarity on this aspect is vital given UAE’s vast expat population.
How Can Residents Structure Finances Tax-Efficiently?
While corporate tax won’t create direct tax costs for individuals, it can still indirectly impact returns from local employment, investments routed through companies, etc.
So some tax planning tips include:
- Assess which bank accounts provide better interest rates
- Evaluate if shifting some assets overseas yields higher post-tax returns
- Ensure your portfolio has international dividend stocks
- Disclose foreign income only when mandatory for visa renewal
Responsible optimization aligning with laws allows residents to enhance post-tax yields.
The key is proactive assessment of alternatives rather than reactive measures later.
Conclusion
In summary, while the incoming corporate tax affects UAE companies directly, private individuals do not incur any additional personal tax exposure or filing responsibilities currently. Gross salaries, gig fees, rental yields from personally held properties and other personal investment returns continue as per existing laws.
However, smart financial planning focused on sourcing better returns along with responsible disclosure where applicable can help residents enhance post-tax yields.
FAQs
While not explicitly indicated, the possibility cannot be ruled out over the long term if federal taxation evolves further. However, for now there is no personal tax.
Freelance professionals can continue to enjoy tax-free contracting fees. However indirect aspects like client budgets, company spend potential need to be considered.
Not immediately as it does not fall under the UAE corporate tax ambit. But voluntary disclosure may still be needed for immigration or other purposes on a case-by-case basis.
