Civil Companies Registered in the UAE

In this article, we are going to discuss regarding Civil Companies registered in the UAE and what is the tax liability and registration deadline for Civil Companies etc. Before jumping into this topic, let us understand some basic concepts that are relevant to determining the Civil Company position in UAE Corporate Tax.

Taxable Person

Corporate Tax is imposed on the taxable income of a taxable person for the tax period at the prescribed Tax rates. There are mainly 4 categories of taxable persons in the UAE, which are:

• Resident Juridical Person: Companies registered in the UAE and companies registered outside the UAE but effectively managed and controlled from the UAE.
• Resident Natural Person: Any natural person who is conducting business or business activities in the UAE.
• Non-Resident Juridical Person: Companies registered outside UAE but they have either;
  • Permanent Establishment in the UAE; or
  • Nexus in the UAE; or
  • Source income from the UAE
• Non-Resident Natural Person – A natural person who has an income source in the UAE.

Corporate Tax Base

Under UAE Corporate Tax Law, residents are taxed on their worldwide income, whereas non-residents are taxed for the profit attributable to a permanent establishment or nexus. A non-resident who does not have a permanent establishment or nexus in the UAE, and if the income source is the UAE, such income will be subject to withholding tax. Currently, the withholding tax rate is 0%.

Corporate Tax Registration

The Corporate Tax registration is announced through FTA Decision No. 3 of 2024 which is as below: -

From the above-mentioned details, you must have understood that the Corporate Tax Liability and Corporate Tax registration deadlines are different for companies and natural persons. Companies that are registered in the UAE, irrespective of whether they make a profit, loss, operational, non-operational, etc., have to register for Corporate Tax and file the Corporate Tax return. A natural person who is not getting income from business or business activities in the UAE, or a natural person who is conducting business or business activities in the UAE, but the turnover is less than AED 1 million in a Gregorian calendar, is not subject to Corporate Tax Registration and filings of tax returns.

Let us discuss how the natural person comes under the scope of UAE Corporate Tax purposes. Below are a few examples: -

• Individuals who are conducting business through a trade license or without a trade license.
• Sole Establishments: a natural person who obtains a trade license to do certain business activities
• Individual Partners in the Unincorporated Partnership: Unincorporated partnerships are agreements between two or more people.
• Freelancer permit holders
• Members of the foundation who applied the tax transparency.

Many business owners are having the question in their minds: whether civil companies are unincorporated partnerships or incorporated partnerships. We will see what the difference in the above question is. If;

A civil company is an unincorporated partnership;

In such cases, by default, the tax liability will be on the partners in the unincorporated partnership, and the partnership itself is not taxable. Example: A civil company that has 5 partners and by default, the tax liability of 5 partners is not on civil companies. Assume all the partners are holding equal shares in the civil company; each partner shall register for corporate Tax once the turnover from the civil company exceeds 5 million dirhams (each partner will exceed 1 million dirhams – 20% of AED 5 million Dirhams). Once the partner’s share turnover exceeds 1 million dirhams, the natural person who is a partner shall register for the Corporate Tax within 3 months from the Gregorian calendar year in which the revenue threshold exceeds 1 Million dirhams.

A civil company is an incorporated partnership

If a civil company is an incorporated partnership, such companies are considered the same as other juridical persons, like limited liability companies. A juridical resident person has to register for Corporate Tax within 3 months from the date of license issuance.

Since the deadline was announced, there has been confusion raised in the market about whether civil companies shall register based on an incorporated partnership or an unincorporated partnership. This is mainly because of the FAQ published by the Federal Tax Authority, question No. 49, which is as below:

Question: What is the UAE CT treatment of a sole proprietorship or civil company?

For certain types of business activities, natural persons can form a sole proprietorship or civil company. For CT purposes, these entities will be treated as the natural person or persons owning them.

These FAQs were posted initially on the website of the Ministry of Finance in early 2023 and have now moved to the FTA website.

In the month of March 2024, FTA published a guide, Taxation of Partnerships Corporate Tax Guide | CTGPTN1 and in this guide, in Section 3.2(c), it clarifies examples of incorporated partnerships, which are as follows: Civil Company: As established under Article 92(e) of the Civil Code, a contract, by which two or more persons undertake to contribute jointly to an undertaking of a pecuniary nature by providing a contribution of property or services, with the objective of sharing in the profits or the losses of the undertaking.3 These are known as civil companies or business partnerships in general parlance. This means the partnership that is formed as per Article 92(e) of the civil code is considered a judicial person.

Article 92 of Federal Decree Law No. 5 of 1985 explains who the juridical person is, and Article 92(e), is written as “civil and trading companies, save as excluded by special provision.”.

With this, we have concluded that civil companies are considered juridical persons for UAE Corporate Tax purposes. Thus, civil companies shall follow the registration deadline and filing requirements the same as other juridical persons like LLCs, PJSCs, etc.

To learn more about Corporate Tax Implications on Civil Company (Civil Partnership) in the UAE, book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.