UAE Cabinet Decision Supports the Growth of Small Businesses and Startups

 

Abu Dhabi, UAE - The Ministry of Finance has announced a significant development that will foster the growth of small businesses and startups in the United Arab Emirates (UAE). The issuance of UAE Cabinet Decision No. (49) of 2023 on the treatment of resident and non-resident individuals undertaking business activities for Corporate Tax Law purposes demonstrates the government's commitment to maintaining a clear and competitive tax framework for both local and foreign individual investors.


Under the new decision, the UAE seeks to simplify the Corporate Tax system and ensure that it only applies to business or business-related activity income for natural persons, commonly referred to as individuals. This means that non-business income for individuals, including wages, personal investment income, and other sources, will not fall within the scope of Corporate Tax.


His Excellency Younis Haji Al Khouri, the Undersecretary of the Ministry of Finance, emphasized the UAE's dedication to creating an attractive business environment that supports the growth of small businesses, startups, and the overall economy. He stated, "The new Cabinet Decision demonstrates the UAE's commitment to maintaining a clear and competitive tax framework for both local and foreign individual investors. By simplifying the Corporate Tax system, the UAE continues to foster an attractive business environment that supports the growth of small businesses, startups, and the overall economy."


The decision provides clarity on the application of the Corporate Tax regime for individuals, ensuring that only income generated from business or business-related activities is subject to taxation. Personal income, such as wages, investments, and real estate income without licensing requirements, will not be subject to Corporate Tax. Individuals engaging in business or business activities will only be required to register for Corporate Tax and meet the related requirements if their combined turnover exceeds AED 1 million in a calendar year.


To illustrate, let's consider the case of a UAE resident who operates an online business. If the annual turnover from this business exceeds AED 1 million, under the new decision, the business income generated by the UAE resident will be subject to Corporate Tax. However, any income derived from rental properties or personal investments will not be subject to Corporate Tax as they fall under the out-of-scope categories.



This decision by the UAE Cabinet is in line with the government's efforts to create a favorable environment for small businesses and startups to thrive. By exempting non-business income from Corporate Tax, the UAE aims to encourage entrepreneurial activity, attract foreign investments, and further enhance the overall competitiveness of its economy.

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