Tax Implications of Business Investments

Background:

Mr. Ahmed, a UAE resident, owns and operates a small bakery in his local community. Recognizing the importance of securing a stable supply of flour, a crucial ingredient in his bakery’s products, Mr. Ahmed decides to purchase shares in Company C, a reputable flour production company. To facilitate this investment, he uses the business account associated with his bakery.

During the Gregorian calendar year 2025, Mr. Ahmed receives AED 500,000 in dividends from his investment in Company C. Concurrently, the turnover generated by Mr. Ahmed’s bakery during the same period amounts to AED 900,000. Consequently, Mr. Ahmed’s total turnover for the year totals AED 1.4 million.

Analysis:

The complexity arises from the classification of the dividends received from Company C. While Mr. Ahmed’s bakery generates revenue through its business activities, the dividends from Company C stem from his investment activities. However, the dividends were received into the bakery’s business account, rather than Mr. Ahmed’s personal account, blurring the line between personal investment income and business revenue.

In accordance with tax regulations, the dividends received from Company C must be included as part of the tax period’s total turnover. This inclusion is justified by the fact that the dividends were received in the course of a business activity, facilitated by the bakery’s business account. As a result, Mr. Ahmed’s total turnover for the tax period exceeds the AED 1 million threshold, obligating him to meet certain tax requirements applicable to businesses with turnovers above this threshold.

Conclusion:

In conclusion, Mr. Ahmed’s investment in Company C, though made using the bakery’s business account, presents challenges in determining his tax obligations. The dividends received from Company C are considered part of the bakery’s total turnover for the tax period, contributing to the threshold for tax obligations. This case highlights the importance of understanding the intricacies of business investments and their implications for taxation, emphasizing the need for careful consideration and compliance with relevant regulations.