Is a Holiday Homes rental by an individual taxed under Corporate Tax?

a Business or Business Activity and so the income derived is out of scope of Corporate Tax, i.e. it is Real Estate Investment income. Miss M incurs direct costs and common costs in respect of the holiday homes Business and the residential apartments. Miss M is registered with the FTA for Corporate Tax and pays Corporate Tax. In relation to the common costs, Miss M applies an apportionment method based on the value of the properties. Thus, Miss M’s Taxable Income in relation to real estate would be the income from the holiday homes, less direct costs incurred for the holiday homes and the common costs apportioned to the 14 holiday homes. The income derived from the 2 apartments, less the direct costs incurred for the 2 apartments and common costs apportioned to the 2 apartments would fall under the Real Estate Investment exclusion. 4.5. Jointly owned land or real estate property In the case of co-ownership of land or real estate property by multiple persons, the income derived from Real Estate Investment activity must be allocated to each owner. All facts and circumstances must be assessed on a case-by-case basis to determine the appropriate allocation of income between joint owners. Where the owner is a natural person, their allocated income will be out of scope of Corporate Tax if they do not conduct the Real Estate Investment activity through a Licence (or require a Licence to do so). Each joint owner should individually assess whether their income is from Real Estate Investment based on their individual facts and circumstances. Example 11: Rental income from jointly owned real estate property Mr F owns apartments in Ras Al Khaimah that are rented as holiday homes under a licensed real estate sole establishment. Mr F has registered for Corporate Tax, was not eligible for Small Business Relief due to his Turnover exceeding AED 3,000,000 during a Gregorian calendar year, and pays Corporate Tax on the Taxable Income of the Business. In addition, Mr F and his brother, Mr G, inherit 25 villas in Ras Al Khaimah, with each brother holding a 50% ownership interest in each villa. They decide that 22 villas will be rented as holiday homes, and this activity requires a Licence. As such, the holiday homes are rented under Mr F’s sole establishment. Each brother will be allocated their share of income in respect of their ownership interest, i.e. 50% Corporate Tax Guide | Real Estate Investment | CTGREI1 19

Example 1: Tax Registration for natural persons Case 1: A natural person is a shareholder in a UAE joint stock company and does not conduct Business independently from the company. The income from being a shareholder will be classed as Personal Investment income so the natural person will not be required to register for Corporate Tax. Case 2: A natural person develops accounting software in her home in Sharjah and starts selling licences to companies. The total sales in a Gregorian calendar year are AED 1.2 million. The natural person is required to register as she is conducting a Business in the UAE and her total Turnover in the Gregorian calendar year exceeds AED 1 million. Case 3: A natural person is a shareholder of a UAE joint stock company and opens an independent car rental agency operated from his home in Abu Dhabi that generates a monthly income of AED 1.5 million. The income from being a shareholder will be classed as Personal Investment income so will not be subject to Corporate Tax. However, the natural person is required to register as he is conducting a Business in the UAE (i.e. the car rental agency Business) and his total Turnover in the Gregorian calendar year exceeds AED 1 million. Case 4: A natural person employed by a UAE limited liability company sells her two personal cars for more than AED 550,000 each. The natural person is not required to register on the basis that the selling of her personal cars is not a Business Activity, and her Wage is also not subject to Corporate Tax. Case 5: A natural person derives rental income of AED 1.5 million from two apartments he owns in the UAE that he bought as a Real Estate Investment. The natural person is not required to register as the rental income will be classed as Real Estate Investment income, which is not subject to Corporate Tax for natural persons. Corporate Tax Guide | Registration of Natural Persons | CTGRNP1 16

Article 11 – Taxable Person 1. Corporate Tax shall be imposed on a Taxable Person at the rates determined under this Decree-Law. 2. For the purposes of this Decree-Law, a Taxable Person shall be either a Resident Person or a Non-Resident Person. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 16 3. A Resident Person is any of the following Persons: a. A juridical person that is incorporated or otherwise established or recognised under the applicable legislation of the State, including a Free Zone Person. b. A juridical person that is incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled in the State. c. A natural person who conducts a Business or Business Activity in the State. d. Any other Person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister. 4. A Non-Resident Person is a Person who is not considered a Resident Person under Clause 3 of this Article and that either: a. Has a Permanent Establishment in the State as under Article 14 of this Decree-Law. b. Derives State Sourced Income as under Article 13 of this Decree-Law. c. Has a nexus in the State as specified in a decision issued by the Cabinet at the suggestion of the Minister. 5. A branch in the State of a Person referred to in Clause 3 of this Article, shall be treated as one and the same Taxable Person. 6. The Cabinet shall, upon a suggestion of the Minister and in coordination with the relevant competent authorities, issue a decision specifying the categories of Business or Business Activity conducted by a resident or non-resident natural person that are subject to Corporate Tax under this Decree-Law.