Corporate income tax in the UAE: What benefits can real estate investments bring to businesses businesses

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One such practice is the purchase of real estate by business owners in the name of their company. The separate legal identity of the company. In the UAE, it is quite common for business owners to purchase real estate in the name of their company rather than their personal name. This helps to pool assets, strengthen the company's financial statements and facilitate future borrowing, if necessary. If one or more persons actually own 100% of the shares in a company, the owner(s) and the company can almost be seen as an extension of each other. However, under the Corporate Tax Law, companies on the mainland or in free economic zones are treated as "legal entities", i.e. a legal entity incorporated or otherwise recognized under UAE law. "Legal Entity" has a separate legal personality distinct and independent from its owners/shareholders. A legal entity has its own rights, obligations and duties. This is an established global principle since 1896 (Reference: Solomon v. Solomon). Real estate held by a company should be considered as belonging to the company and not to its owners. The consequences will not change whether it is commercial or residential property, whether it is in the UAE or outside the UAE.

All activities are businesses Business owners often look only at the core activities of a company, such as manufacturing/trading/services, to assess the corporate tax impact. It is incorrectly assumed that a company is not in the real estate business simply because it owns real estate (its owner(s)). It is also assumed that rent or income from future sale should not be taxed as profits.

Tax on individuals with real estate Certain income received by an individual on a personal basis is not subject to tax, such as (i) interest and income from bank deposits and (ii) dividends, capital gains and other income from holding shares or other securities. Income received by an individual from a real estate investment in the UAE on a personal basis is generally not subject to corporate tax. However, further details are awaited to determine the scope of exemption for such investments.

Is it too late? Since income earned by an individual from real estate may not be taxable, business owners may want to consider transferring real estate into their company's name before corporate tax is introduced. Will this be the right decision? Although the Act will take effect on June 1, "anti-abuse" rules have already been in place since the Corporate Tax Act was published in the Official Gazette. Under the "anti-abuse" rules, a transaction or agreement that lacks a valid business reason and is carried out primarily to obtain a tax advantage inconsistent with the corporate tax laws may be disregarded for tax purposes. In other words, if a transfer is not made for a valid commercial reason, the transfer can be ignored and the property will still be treated as the property of the company for tax purposes.

Tax Policy and Clarifications As corporate tax is a new phenomenon in UAE, business owners will need a lot of support and guidance on tax issues. Public clarifications from the authorities on such outdated issues will be very helpful. Pankaj S. Jain, the author, is the managing director of AskPankaj Tax Advisors.