Page 6 - ICAI UAE TAX UPDATE_October 2024
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The exclusion from Corporate Tax applies to investment  Apportionment of expenditure:
       activities conducted in the UAE, which is in relation to  Apportionment methods are criteria used to determine
       land or real estate property located in the UAE and/or  how expenses can be assigned or distributed across
       outside of the UAE                                     different activities. The apportionment method chosen
                                                              must be logical and must fairly represent the benefit
       With  reference  to  the  term  “indirectly”,  the  income  that the expense generates for each income component.
       received by a natural person through an intermediary
       can  qualify  for  the  Real  Estate  Investment  exclusion,  The apportionment method should be used consistently
       depending on the exact facts and circumstances. For  from one Tax Period to the next, unless there is a change
       Corporate  Tax  purposes,  the  Taxable  Person  is  the  in fact pattern which justifies a change in apportionment
       natural person conducting the Business and not the sole  or methodology.
       establishment or sole proprietorship.
                                                              In the case of co-ownership of land or real estate
       Transactions between Related Parties, must meet the  property by multiple persons, each joint owner should
       arm’s length standard for Corporate Tax purposes. Such  individually assess whether their income is from Real
       transactions would include, but not be limited to, lease  Estate Investment based on their individual facts and
       agreements between a natural person and its Related  circumstances.
       Parties, and property management agreements between
       a natural person and its Related Parties.              General  Anti-abuse Rule (GAAR): The  General  Anti-
                                                              abuse Rule allows the FTA to counteract or adjust any
       If income from Real Estate Investment is excluded from  transaction which lacks commercial substance or does
       the scope of Corporate Tax, then expenditure that relates  not reflect economic reality and is undertaken for the
       directly or indirectly to Real Estate Investment income is  main purpose of, or where one of the main purposes
       not deductible for Corporate Tax purposes              is, obtaining a Corporate  Tax advantage that is not
                                                              consistent with the intention of the Corporate Tax Law.
       A natural person should be able to clearly demonstrate
       the basis for separating real estate income earned in  if a real estate transaction or arrangement is entered
       a non-Business capacity from their other Business or  into with a main purpose of obtaining a Corporate Tax
       Business Activities to benefit from the exclusion.     advantage, such as the Real Estate Investment exclusion,
                                                              and this lacks commercial substance as well as being
       In the case of co-ownership of land or real estate  inconsistent with the intention of the Corporate Tax Law,
       property by multiple persons, the income derived from  the FTA can, for instance, require the relevant income to
       Real Estate Investment activity must be allocated to  be treated as Taxable Income.
       each owner. 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

       If income from Real Estate Investment is excluded from
       the scope of Corporate Tax, then expenditure that relates
       directly or indirectly to Real Estate Investment income is
       not deductible for Corporate Tax purposes.

       Income derived from Real Estate Investment that
       benefits from the exclusion is outside the scope of
       Corporate Tax and shall not be included in the natural
       person’s Turnover to compute AED 1 million threshold
       as discussed above.

       It is necessary to consider whether the income may be
       Taxable Income derived from the use of the real estate
       for the purposes of the natural person’s Business, and
       thus, would not benefit from the Real Estate Investment
       exclusion for Corporate Tax purposes.


       6    www.icaidubai.org


      UAE TAX UPDATE NEWSLETTER                                                ISSUE 07 - October 2024
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