One of the common misconceptions in the UAE is that if they earn income above AED 1 million, then they need to pay UAE Corporate Tax. Many people think that when they earn over AED 1 million, they have to pay Corporate Tax. It’s not like that, though.
It is not the income of the individual, but a total turnover of more than AED 1 million for A Gregorian calendar year from a Business or Business Activity in the UAE.
What Is the AED 1 Million Rule?
Under the UAE Corporate Tax framework, a natural person is generally subject to Corporate Tax only if they:
- Conduct a Business or Business Activity in the UAE.
- Generate business turnover exceeding AED 1 million in a calendar year.
The threshold applies to business turnover (gross revenue), not an individual’s total personal income.
Turnover vs. Profit
An important difference is that the threshold of AED 1 million is on turnover, not profit.
In the case of a consultant, for example, expenses of AED 500000 and the revenue from his/her business of AED 1200000, the turnover is AED 1200000 and the net profit is AED 700 000. UAE Corporate Tax may apply to the individual as the business turnover is more than AED 1 million.
Income Generally Excluded
Not all income earned by an individual is considered business income for Corporate Tax purposes.
Employment Income
Salary and other employment income are generally outside the scope of Corporate Tax. An employee earning AED 1.5 million annually does not become liable for Corporate Tax solely because their salary exceeds AED 1 million.
Personal Investment Income
Income from investments held in a personal capacity, such as qualifying returns from shares or securities, may also fall outside the scope of Corporate Tax, provided the activity does not constitute a business.
Real Estate Investment Income
Income from qualifying real estate investments may also be excluded where the activity meets the applicable Corporate Tax conditions. However, the nature of the activity should always be reviewed carefully.
What Happens If Business Turnover Exceeds AED 1 Million?
Where an individual’s business turnover exceeds AED 1 million, they may be required to:
- Register for UAE Corporate Tax
- Maintain appropriate accounting records
- Calculate taxable income in accordance with the Corporate Tax Law
- File a Corporate Tax Return within the prescribed deadline
- Pay Corporate Tax where applicable
Exceeding the threshold does not mean that Corporate Tax is charged on the full AED 1 million turnover.
Corporate Tax is generally calculated on Taxable Income (profit) after applying the relevant deductions, adjustments, exemptions, and reliefs available under the law.
UAE Corporate Tax Rates
The standard Corporate Tax rates are:
- 0% on the total taxable income up to AED 375,000
- 9% on the total taxable income above AED 375,000
Subject to eligibility, natural persons may also benefit from Small Business Relief.
Practical Examples
Example 1 – Employee
An employee earning an annual salary of AED 1.4 million is generally not required to register for Corporate Tax solely because of their salary.
Example 2 – Consultant
A consultant with annual business turnover of AED 1.3 million has exceeded the AED 1 million threshold and should assess their Corporate Tax registration and compliance obligations.
Example 3 – Small Business Owner
Generally, an owner of a business with an annual turnover of AED 900,000 is not required to register unless there are other business activities that need to be aggregated.
Example 4 – Salary Plus Business
An individual earns:
- Salary: AED 800,000
- Consultancy turnover: AED 600,000
Although the total cash inflow is AED 1.4 million, only the consultancy turnover is considered for the AED 1 million business turnover test. As a result, the threshold has not been exceeded.
Multiple Business Activities
Individuals carrying on more than one Business or Business Activity should generally consider the combined turnover from those activities when assessing the AED 1 million threshold.
Separating different business activities or income streams does not necessarily remove Corporate Tax obligations.
Corporate Tax vs. VAT
The AED 1 million threshold for natural persons under Corporate Tax should not be confused with the UAE VAT registration threshold.
These are separate tax regimes with different registration requirements, thresholds, and compliance obligations. A person can be liable for VAT without having to register for Corporate Tax and vice versa.
Key Takeaway
The UAE Corporate Tax rates will not apply to people with income above AED 1 million.
The answer to the question is dependent on whether they are doing a Business or a Business Activity in the UAE and whether the aggregate of their Business and Business Activity’s turnover exceeds AED 1 million during the calendar year.
Salary, qualifying Personal Investment Income, and qualifying Real Estate Investment Income are generally treated differently and should not automatically be included when applying the business turnover threshold.
Individuals with consultancy income, professional services, trading activities, online businesses, multiple business activities, or significant property income should carefully assess their Corporate Tax obligations to ensure compliance with UAE tax regulations.
Need Professional Corporate Tax Assistance?
It can be difficult to know whether or not you need to register for UAE Corporate Tax, especially if you have several income streams or business activities.
Accruon Auditing LLC offers expert assistance in Corporate Tax Registration, Corporate Tax Compliance, Corporate Tax Return filing, Accounting Services, VAT Services, and Business Advisory Services to help individuals and businesses comply with their tax obligations confidently.