Key Summary
On October 24, 2024, the UAE Federal Tax Authority (FTA) issued a new guidance document titled „Real Estate Investment for Natural Persons Corporate Tax Guide.“ This non-legally binding guide clarifies the corporate tax implications for natural persons—individuals rather than companies—earning income through private real estate investment. The guidance aligns with Cabinet Decision No. 49 of 2023, highlighting circumstances under which income from private real estate investments can be excluded from corporate tax obligations.
Corporate Tax Scope and Real Estate Investment Clarifications
The recent FTA guide focuses on the tax implications for natural persons who generate income from real estate without operating a formal business. Private real estate investment encompasses activities such as selling, leasing, or renting property in the UAE, provided these activities do not require licensing from an official licensing authority. If these criteria are met, the income derived by individuals from such activities falls outside the corporate tax framework.
The guidance defines „real estate property“ broadly, including residential and commercial buildings, showrooms, warehouses, storage areas, parking spaces, and garages. Importantly, this exclusion applies regardless of the property’s use by tenants, the volume of real estate transactions, or the income generated, as long as the activities meet the license-free requirements specified in the decision.
Conditions for Exclusion from Corporate Tax
The FTA guide specifies that individuals can qualify for corporate tax exclusions if their real estate activities do not constitute a business requiring a license. To distinguish private real estate investments from taxable business activities, individuals must clearly demonstrate that real estate income and expenditures are separate from any licensed business operations. For example, if an individual owns property and operates a licensed business, these income streams must be demonstrably independent to benefit from tax exclusions for real estate income.
Expenditures directly or indirectly tied to private real estate investments are non-deductible from corporate tax obligations. Therefore, individuals must accurately document and allocate expenses for each activity to maintain clear separation. The guide emphasizes that only non-business-related income—when properly separated from licensed activities—can be exempted from corporate tax.
Scenarios and Examples
In cases of jointly owned property, for instance, each owner’s income share can be excluded from corporate tax if the activity is non-licensed. Sole establishments or sole proprietorships are considered the same entity as the individual, unlike companies with separate legal personalities. For these entities, distinguishing real estate income from business income is essential for accurate tax application.
Apportionment of Expenses and Anti-Abuse Rules
For individuals involved in both excluded and licensed activities, the guide outlines an apportionment process for shared expenses, such as general overheads. Individuals should allocate costs fairly across activities based on reasonable factors like usage or time allocation to ensure accurate tax calculations.
Moreover, the guidance includes a General Anti-Abuse Rule, which seeks to prevent tax avoidance. If a real estate transaction primarily aims to gain a corporate tax advantage, the FTA may reclassify the income as taxable. This measure ensures compliance and consistency with the intentions of the UAE’s corporate tax law.
The TME Legal Takeaway
The FTA’s Real Estate Investment Guide provides clarity for natural persons on managing tax obligations tied to income from private real estate investments. By delineating the boundaries between private and business-related real estate activities, the guide enables individuals to understand when income qualifies for corporate tax exclusions. This guidance is particularly valuable for individuals balancing personal real estate investments with licensed business ventures, as it outlines critical compliance steps to manage tax obligations effectively.
