The implementation of corporate tax in the UAE is an admirable policy initiative aimed at streamlining outdated procedures that may lead to substantial expenses down the line for businesses expanding in the UAE. It is crucial to scrutinize the tax policy and clarifications offered by the government regarding these outdated practices, such as the purchase of real estate by business proprietors under their company’s name.
In the UAE, it is common for business proprietors to acquire real estate under their company’s name to enhance the company’s financial statements and simplify potential borrowing processes. However, companies situated on the mainland or in free zones are considered “juridical persons” and possess separate legal personalities that are distinct and independent from their owners or shareholders. Therefore, the real estate held under a company’s name should be considered the property of the company itself, rather than its proprietors.
It is essential to note that, for the purposes of the UAE Corporate Tax (CT) Law, all activities and assets used by a company are considered to be within the scope of its “business.” Any activities undertaken by a juridical person will be viewed as “business activities” and subject to CT, including for businesses involved in real estate management, construction, development, agency, and brokerage activities.
There are no exemptions proposed under the CT decree law for companies earning income from property. Therefore, it is possible that income or gains from real estate held by companies may be subject to taxation in the future. An individual’s personal investment income in UAE property will not be subject to CT, including interest and bank deposit income, as well as dividends, capital gains, and other securities income. However, additional information is necessary to determine the extent of exemption for such investments.
Business owners must understand that transferring real estate in their company’s name to their own before the implementation of CT could be disregarded for tax purposes. The anti-abuse rules state that any transaction or arrangement carried out without a valid commercial reason with the sole intent of obtaining a CT advantage inconsistent with CT laws could be disregarded for tax purposes.
Given that corporate tax is still a relatively new concept in the UAE, it is crucial for business owners to receive adequate support and guidance on tax-related matters. A public clarification from the relevant authorities regarding any legacy issues would be immensely beneficial for businesses. With these considerations, businesses can navigate the new UAE Corporate Tax and Business Real Estate Investment opportunities.
