The UAE issued the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses on 09 December 2022, which applies to both legal entities and natural persons who carry out business or business activities in the UAE. The law requires such persons to register corporate tax as natural persons and file tax returns annually. However, there are certain situations where a natural person may need or want to deregister from corporate tax, such as when the business ceases to exist, when the person no longer meets the criteria for being a taxable person, or in the event of death. This article will explain the conditions for the corporate tax deregistration for natural persons in the UAE.
Who is a Natural Person?
According to the UAE Corporate Tax Law, a natural person is an individual who conducts a Business or Business Activity in the UAE. A natural person is subject to Corporate Tax on their Business or Business Activity only if their total turnover exceeds AED 1 million in a Gregorian calendar year. The income from wage, personal investment income, or real estate investment income is not taxable under the UAE Corporate Tax Law.
When can a Natural Person Deregister from Corporate Tax?
A natural person who is subject to Corporate Tax must register with the Federal Tax Authority (FTA) and file annual Tax Returns, reporting their Turnover and Taxable Income. However, there are certain situations where a natural person may need to deregister from Corporate Tax, such as when they cease their Business or Business Activities, or when they die.
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Cessation of Business or Business Activity
A natural person who is registered for Corporate Tax, or sometimes their Legal Representative, must apply for Tax Deregistration with the FTA if they stop their Business or Business Activity due to closure, liquidation, or any other reason. They have to file the application within 3 months from the date they stopped the Business or Business Activity.
- Conditions for Tax Deregistration
The natural person cannot file the deregistration application if they still have any active or ongoing Businesses or Business Activities, even if their Turnover is below the AED 1 million threshold in a Gregorian calendar year.
A natural person’s Tax Period is the Gregorian calendar year and their Taxable Income covers all the Businesses or Business Activities they did in that year. The Gregorian calendar year starts on 1 January and ends on 31 December. A natural person has only one Tax Registration Number for all their Businesses or Business Activities. If they have more than one Business or Business Activity, they should only deregister when they have stopped all of them.
- Tax obligations after stopping Business or Business Activities
If a natural person stops their Business or Business Activities in the middle of a Tax Period, the Tax Period ends. They have to submit the Tax Deregistration application within 3 months from the date they stopped and file the Tax Return according to the normal deadlines (9 months after the end of the Tax Period).
The FTA will not approve the Tax Deregistration if the natural person has not filed all the necessary Tax Returns, including the one for the Tax Period up to and including the date they stopped, and paid all the Corporate Tax and Administrative Penalties they owe.
- Re-registration after Tax Deregistration
If a natural person applies for deregistration and then starts a new Business or Business Activity in the same year after deregistration, the FTA will reactivate their suspended Tax Registration Number.
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Death of the Taxable Person
In instances where a natural person conducting Business or Business Activities dies, the natural person ceases to be a Taxable Person. The settlement of any outstanding Corporate Tax liabilities due from the natural person prior to the date of death shall be made in accordance with the provisions of Article 42(1) of the Tax Procedures Law. These apply as follows:
- For Corporate Tax Payable due prior to the date of death, settlement shall be made from the value of the elements of the estate or income arising thereof prior to distribution among the heirs or legatees.
- If it transpires after the distribution of the estate that there is Corporate Tax Payable still outstanding, recourse shall be had against the heirs and legatees for settlement of such outstanding tax each to the extent of their share in the estate, unless a clearance certificate has been obtained from the FTA for the estate representative or any of the heirs.
The estate representative or any of the heirs must file a Tax Deregistration application with the FTA within 3 months of the date of death of the natural person. The FTA will not approve the Tax Deregistration unless the estate representative or any of the heirs has filed all the required Tax Returns, including the Tax Return for the Tax Period up to and including the date of death, and paid all due Corporate Tax and Administrative Penalties.
How to apply for Corporate Tax Deregistration?
- A Person who is registered for Corporate Tax and stops being a Taxable Person for any reason must submit a Tax Deregistration application to the FTA.
- The FTA will only deregister the Person for Corporate Tax after they have paid all their Corporate Tax dues and penalties and filed all their Tax Returns.
- The FTA will approve or reject the Tax Deregistration application and notify the Person of the effective date of deregistration, which could be either the date of Business termination or another date specified by the FTA.
What are the consequences of failing to apply for Corporate Tax Deregistration?
A natural person who fails to apply for corporate tax deregistration within the prescribed deadline may face the following consequences:
- The natural person will remain liable for corporate tax and filing obligations until the FTA approves their deregistration application.
- Failure to submit a deregistration application within 3 months of the date the entity ceases to exist, cessation of the Business, dissolution, liquidation or otherwise, will result in a penalty of AED 1,000, and a further AED 1,000 on the same date monthly, up to a maximum of AED 10,000.
- The natural person may be subject to tax audits or assessments by the FTA or any other tax authority in the UAE or abroad.
- The natural person may face legal action or prosecution by the FTA or any other competent authority for tax evasion or fraud.
Consult Leading Tax Consultants in UAE
If you are a natural person who conducts a business or business activity in the UAE, you may be subject to corporate tax if your annual turnover exceeds AED 1 million. However, if you decide to cease your business or business activity, or if your turnover falls below the threshold, you may be eligible to deregister from corporate tax and avoid paying unnecessary taxes and penalties.
Deregistering from corporate tax is not a simple process. You need to follow the rules and procedures set by the Federal Tax Authority (FTA) and submit the required documents and information. You also need to ensure that you have paid all your outstanding corporate tax liabilities and filed all your corporate tax returns before you can deregister.
This is where Tax Consultants in UAE can help you. We are a team of experienced and qualified tax consultants who can assist you with corporate tax deregistration for natural persons in the UAE. We can:
- Review your business or business activity and determine whether you are eligible to deregister from corporate tax.
- Prepare and submit the corporate tax deregistration application to the FTA on your behalf.
- Communicate with the FTA and resolve any issues or queries that may arise during the deregistration process.
- Advise you on the best practices and compliance requirements for corporate tax in the UAE.
With our qualified Tax consultants, you can rest assured that your corporate tax deregistration will be handled professionally and efficiently. We will save you time, money, and hassle and help you avoid any legal risks or complications.
