What You Need to Know About a Taxable Person’s Death in the UAE

The taxation of a natural person’s estate in the UAE is a complex matter that requires a clear understanding of the relevant laws and regulations. When a taxable person passes away, there are implications for their tax status and any outstanding liabilities. This article will provide a comprehensive overview of what you need to know about a taxable person’s death in the UAE, covering key aspects such as deregistration, tax liabilities, and the implications for the estate.

Tax Implications of a Taxable Person’s Death in the UAE

When a taxable person dies in the UAE, their estate is subject to tax on any taxable income earned up to the date of their death. This includes any income earned from a business or business activity, as well as any other income that is subject to tax under the UAE Corporate Tax Law. It is important to note that income derived from wages, personal investment income, and real estate investment is disregarded when determining the turnover for Corporate Tax.

Following are the tax implications of a taxable person’s death in the UAE:

• Tax Deregistration

Upon the death of a taxable person, their Legal Representative or, in certain cases, the Executor of the Will, is responsible for filing a Tax Deregistration application with the FTA. This application must be submitted within three months of the date of cessation of Business or Business Activity, which is the date of death in this case.

• Tax Return Filing

The deceased taxable person’s Legal Representative or Executor must ensure that all outstanding Tax Returns are filed before the Tax Deregistration application is submitted. This includes the Tax Return for the Tax Period up to and including the date of cessation (i.e., the date of death).

• Settlement of Outstanding Tax Liabilities

Any outstanding Corporate Tax liabilities of the deceased taxable person must be settled before the Tax Deregistration application can be approved. The tax liability of the deceased taxable person’s estate is calculated based on their taxable income for the tax year in which they died. The tax liability is then payable by the deceased taxable person’s legal representative or executor of their estate.

The settlement of these liabilities will be made from the value of the elements of the estate or income arising thereof prior to distribution among the heirs or legatees. If it is discovered after the distribution of the estate that there is still Corporate Tax Payable, recourse will be had against the heirs and legatees for settlement of the outstanding tax each to the extent of their share in the estate, unless a clearance certificate has been obtained from the FTA for the estate representative or any of the heirs.

• Obtaining a Tax Clearance Certificate

The legal representative or executor of the deceased taxable person’s estate must obtain a tax clearance certificate from the UAE Federal Tax Authority (FTA) before distributing the estate’s assets to the heirs. The tax clearance certificate confirms that the estate has fulfilled its tax obligations and that there are no outstanding tax liabilities.

To obtain a tax clearance certificate, the legal representative or executor must submit the final tax return, pay any outstanding tax liabilities, and provide any other documents or information requested by the FTA.

• Interaction with Small Business Relief

Small business relief is a provision under the Corporate Tax law that allows eligible taxable persons to be treated as having no taxable income for the relevant tax period. In the event of a taxable person’s death in the UAE, the small business relief may still apply if the following conditions are met:

• The deceased taxable person was eligible for small business relief at the time of death.
• The estate representative files a final corporate tax return on behalf of the deceased taxable person for the tax period ending on the date of death.
• The estate representative applies for small business relief in the final corporate tax return.

If these conditions are met, the small business relief may be applied to reduce or eliminate any outstanding corporate tax liabilities due from the deceased taxable person prior to the date of death.

• Interaction with Other Business Forms and Entities

The Corporate Tax law provides guidelines on the tax treatment of various business forms and entities, including juridical persons, sole proprietorships, unincorporated partnerships, and family foundations. In the event of a taxable person’s death in the UAE, the interaction with these other business forms and entities may have implications for the settlement of outstanding corporate tax liabilities.

For example, if a deceased taxable person was a partner in an unincorporated partnership, the partnership may be required to file a final corporate tax return on behalf of the deceased partner. The partnership may also be required to settle any outstanding corporate tax liabilities due from the deceased partner prior to the distribution of the estate.

Conclusion

In conclusion, the taxable person’s death in the UAE has significant implications for their tax status and liabilities. The settlement of outstanding Corporate Tax liabilities and the process of deregistration are essential considerations that must be addressed in accordance with the provisions of the Tax Procedures Law. It is imperative for the estate representative or heirs to consult legal and tax professionals like Farahat and co to ensure compliance with the relevant laws and regulations