UAE Corporate Tax and How It Affects Real Estate Investors in Dubai

The Corporate Tax Law Overview

The Federal Decree-Law No. 47 of 2022 issued on the 3rd of October 2022 on the Taxation of Corporations and Businesses and its amendments (“Corporate Tax Law”)—both of which were published in issue #737 of the Official Gazette of the United Arab Emirates on the 10th of October, 2022—provide together the legislative basis for imposing a federal tax on corporations and Business Profits.

Corporate Tax for Natural Persons

According to the UAE Corporate Tax Law, natural persons conducting Business or Business Activities in the UAE are classified as Resident Persons, regardless of their actual place of residence. Note that international agreements, such as Double Taxation Agreements, override any provisions of the UAE Corporate Tax Law that may conflict with such agreements, when determining the tax residence of natural persons.

However, natural persons will only be subject to Corporate Tax, and required to register for Corporate Tax, if the total Turnover they derive from Business or Business Activities conducted in the UAE exceeds AED 1 million within a Gregorian calendar year.

Further, for a natural person, income from the following categories is not considered as arising from a Business or Business Activity, and is disregarded when determining Turnover, i.e., it is not subject to Corporate Tax—regardless of the amount:

• Wage
• Personal Investment income
• Real Estate Investment income

Definition of Real Estate Investment (Cabinet Decision No. 49 of 2023)

Business or Business Activities, conducted by a natural person, shall be subject to Corporate Tax only where the total Turnover derived from such Business or Business Activities exceeds AED 1 million within a Gregorian calendar year.

As mentioned above and for corporate tax real estate purposes, Turnover from Real Estate Investment is excluded from Business or Business Activities conducted by a natural person. Cabinet Decision No. 49 of 2023 defines Real Estate Investment as any investment activity conducted by a natural person related directly or indirectly to the sale, leasing, sub-leasing, and renting of land or real estate property in the UAE that is not conducted, or does not require to be conducted, through a Licence from a Licensing Authority.

Therefore, the gross amount of income, and related expenditure, derived by a natural person from Real Estate Investment is excluded from Corporate Tax.

Distinguishing Between Taxable Businesses and Excluded Real Estate Investment

Real Estate Investment income is disregarded when determining Turnover and so is not subject to Corporate Tax, regardless of the amount. The exclusion from Corporate Tax does not apply to land or a real estate property that is owned as part of a Business or Business Activity conducted by the natural person through a Licence.

A natural person may own land or real estate property in a non-Business capacity and also operate a Business or Business Activity requiring a Licence. In this situation, the question arises as to whether any income earned in relation to land or real estate property is outside the scope of Corporate Tax (i.e., derived from a Real Estate Investment activity). It is necessary to consider whether the income may be Taxable Income derived from the use of the real estate for the purposes of the natural person’s Business, and thus, would not benefit from the Real Estate Investment exclusion for Corporate Tax purposes.

Under the self-assessment principles of Corporate Tax, a natural person should be able to clearly demonstrate the basis for separating real estate income earned in a non-Business capacity from their other Business or Business Activities to benefit from the exclusion. The real estate income earned in a non-Business capacity can benefit from the Real Estate Investment exclusion. An example of a transaction covered by the Real Estate Investment exclusion could be a natural person with a Business in relation to real estate, who sells their personal residence in a non-Business capacity.

Clarifying Examples

Example 1: Private Ownership

Mr. X (based in the UAE) bought a personal residence in 2023 for AED 1,000,000.
In 2024, Mr. X sold his personal residence to a third-party for AED 1,500,000.
Because Mr. X’s personal residence increased in value, he realized a profit of AED 500,000.
Mr. X did not have a Licence nor was required to have a Licence to execute the sale of his house. As such, the realized income by Mr. X from the sale of his personal residence is considered Real Estate Investment income and, hence, shall be excluded from the scope of Corporate Tax.

Example 2: Private Ownership & an Un-related Business Activity

Mr. X’s friend—Mr. Y, runs a bakery Business through a sole establishment and has a Licence to conduct that Business.
In addition, Mr. Y owns and leases 2 apartments.
In this case, Mr. Y does not have (and does not require) a License to lease the apartments and earn rental income from them.
In these circumstances, the income received/earned from the leasing or renting out of the two apartments would not be considered as connected or related to the bakery license.
Hence, the rental income earned from the two apartments will qualify as Real Estate Investment income and therefore will be outside the scope of Corporate Tax.

Example 3: Rental Income with a Licence Relating to Real Estate in the UAE

Mr. X and Mr. Y have a mutual friend Faisal. Faisal, who is the owner of four apartments, receives rental income through their real estate management sole establishment called FRE Corporation. In this case, the real estate management sole establishment (FRE Corporation) does not have a separate legal personality from the natural person (owner). The sole establishment possesses the appropriate Licence for property management and leasing. Among other services such as sourcing tenants, tenancy contract registration, advertising properties, etc., the real estate management sole establishment also collects the rent from the tenants. As the property management sole establishment carries on the Business of leasing, or otherwise dealing in real estate through a Licence, the natural person would be considered as operating through a Licence and would not be entitled to apply the Real Estate Investment exclusion. As a result, the rental income would need to be taken into account in the calculation of their Turnover by the natural person for Corporate Tax purposes.