The introduction of Corporate Tax (CT) in the UAE has brought significant changes to the taxation landscape, impacting various business structures, including sole proprietorships and civil companies. This blog post aims to clarify the CT treatment for these entities and address whether they are considered juridical persons for CT purposes.
1. UAE CT Treatment of Sole Proprietorships and Civil Companies
In the UAE, a sole proprietorship is a business owned and operated by a single individual, while a civil company is typically formed by two or more individuals to conduct professional services. For CT purposes, these entities are not treated as separate legal entities (juridical persons). Instead, they are considered extensions of the natural persons who own them12.
This means that the income generated by a sole proprietorship or civil company is directly attributed to the individual owner(s). Consequently, the owner(s) must report this income on their personal tax returns and are subject to CT on the business income if it meets the relevant thresholds and criteria12.
2. Juridical Person Status for CT Purposes
A juridical person is a legal entity that has its own distinct identity, separate from its owners. Examples include corporations and limited liability companies (LLCs). For CT purposes, sole proprietorships and civil companies do not qualify as juridical persons. Instead, they are treated as part of the natural persons who own and operate them12.
However, individuals conducting business through a sole proprietorship or civil company may still be subject to CT if they engage in relevant business activities within the UAE. This includes meeting specific turnover thresholds or engaging in business activities that fall under the scope of the UAE CT law12.
Conclusion
In summary, sole proprietorships and civil companies in the UAE are not treated as juridical persons for CT purposes. Instead, the income from these entities is attributed to the individual owners, who must report it on their personal tax returns. Understanding this distinction is crucial for compliance with the UAE’s CT regulations and ensuring accurate tax reporting.
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