Performers, Entertainers Now Subject To Tax in the UAE
The UAE is introducing a new tax regime from 1st June this year – just three weeks away. With that come a whole new area of services, such as entertainment, that are now subject to Corporate Income Tax deductions in the UAE. We explain the tax regime.
Tax on service provisions is handled both according to the new UAE tax laws with some relief provided under the various double tax treaties between the UAE and other countries. This means before entering into any performance contract in the UAE, it is necessary for the company or individual to establish whether their nationality has such an agreement in place. A list of these can be found here.
These determine the taxability of entertainers, resident in such other countries, but performing in the UAE. The income derived by these overseas-based individuals – by exercising the activities of an entertainer – a service – in the UAE – are taxable in the UAE.
Such income remains taxable in the UAE even if it accrues, not to the entertainer, but to another person – e.g., the overseas company employing the entertainer. As tax treaties grant the right to impose tax to the UAE, examine the scope of the applicable UAE tax laws.
An individual conducting business activities – to be specified in a cabinet decision – in the UAE will be taxable under the UAE corporate tax. Even though there is no personal taxation in the UAE, corporate tax is still applicable on specified business activities conducted by an individual in the UAE. This taxability is independent of individual’s nationality or residency in the UAE.
Scope of an entertainer
The scope of being an entertainer covers all individuals working as a theatre, motion picture, radio or television artiste, or as a musician.
Any individual practicing a similar profession in the UAE could also find themselves impacted by the UAE tax.
A question may arise if a one-off performance in the UAE could attract corporate tax if the entertainer is not regularly present in the UAE. This has become a moot point and the issue has already been addressed under the tax laws. The questions on the scope of the activity – should it be for public at large or a private movie recording (yet to be released to public) – has already been settled under European tax laws.
However, the tax issue also arises if an entertainer earns income to appear as a brand ambassador, for models to attend events or to do a photo shoot, in the UAE, – this would still be applicable under the corporate tax with a tax liability.
The next time a movie sequence gets recorded, or a singer performs at a concert, in the UAE, the tax implications must be considered even if the payments are received in the home country. Professional advise should be taken to establish any liability and the amounts due.
Tax and sports
The sports industry is not immune from the corporate tax either. The tax position, as applicable on entertainers, equally applies to sportsmen and women in the UAE.
Back in 2020, the issue of VAT implications as affected cricketers playing in the UAE for the respective private teams of the Indian Premier League (IPL) became an issue. It should be noted that two IPL players were fined 100% of their match fee for not declaring their income. The calculation of the fine reflected that the players receive contractual payments for playing for the respective IPL team.
The corporate tax could become an additional compliance point for the sports industry in the future.
Corporate tax vs VAT
The June 1st corporate tax is distinct from VAT, which provide an alternative of reverse charge mechanism (RCM) on the UAE payer to settle the VAT liabilities of an overseas entertainer.
The corporate tax laws do not have any direct alternative for such individuals. Corporate tax laws have a concept of withholding tax to be deducted by a UAE payer. However, withholding tax does not appear to be an alternative to the obligations of a taxpayer.
Further, withholding taxes may not apply to individuals conducting business activities in the UAE as such individuals are not treated as ‘non-resident’ under the CT laws.
International tax policies
The taxation of entertainers/sportsmen is a global issue, with different countries formulating comprehensive domestic policies to address this. To illustrate, in India, the payments for such activities is subject to a withholding tax of 20% and the entertainer/sportsmen is not required to obtain separate tax registration.
Further, specific exemptions have also been provided to non-residents for shooting of movies in India.
However, the UAE corporate tax currently does not provide any exemptions to the entertainment or the sports industry. With UAE being a growing hub for both industries, the tax policy is expected to later address this issue. Answers may be found in due course in the cabinet decision on business activities undertaken by an individual. Until there is clarification, global entertainment industry should take a note of the UAE tax implications for activities performed in the UAE and seek advice in order not to get caught out.
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