Welcome to the world of corporate tax in the UAE! As an accountant or entrepreneur, you know the importance of staying up-to-date on the latest tax laws to make informed decisions for your business.
Is your business subject to UAE Cooperate Tax? That’s why we’ve created this comprehensive guide on the newly announced UAE Corporate Tax Law.
Get ready to take your business to the next level and stay ahead of the game with all the knowledge you need, right here at your fingertips.
The clock is ticking, and the new UAE Corporate Tax Law is now in effect! But who exactly does it apply to?
As an accountant or business professional, it’s essential to know the ins and outs of the tax law, including its applicability.
In this section, we’ll dive into the specifics and provide concrete examples to help you understand which businesses fall under the purview of the UAE Corporate Tax Law.
With references to the relevant articles, you’ll have all the information you need to make informed decisions and confidently discuss the law with your colleagues.
So, let’s get started and explore the exciting world of corporate tax in the UAE!
The new UAE Corporate Tax Law defines that tax will be imposed on a taxable person, and this is key to understanding the scope of the law.
A taxable person can be either a resident person or a non-resident person. Whether your business falls into one of these categories will determine if and how much tax you will be required to pay.
In this section, we’ll delve into the definitions of resident and non-resident persons, and provide clear explanations and examples to help you understand your tax obligations.”
Resident Person refers to:
A business entity incorporated or established in the UAE, such as a local company or a free zone company.
A foreign business entity that is managed and controlled in the UAE, even if it’s incorporated or established outside the UAE.
A natural person who runs a business in the UAE.
Any other type of person that may be specified by a decision from the UAE Cabinet
A “natural person” refers to a real, live human being as opposed to a business entity or corporation. Natural person who conducts a business or business activity in the UAE is considered a Resident Person.
A Non-Resident Person is someone who is not considered a Resident Person and either:
- Has a Permanent Establishment in the State.
- Derives State Sourced Income.
Has a connection to the UAE as specified by a decision from the UAE Cabinet, based on a suggestion from the Minister of Finance.
A “Permanent establishment” refers to a fixed place of business in the UAE where a non-resident person carries out their business activities.
This term is used in tax law to determine the extent to which a foreign company is taxable in the UAE.
For example, if a foreign company has a branch office in Dubai that operates on a permanent basis, this would be considered a permanent establishment in the UAE. The foreign company would then be considered to have a permanent establishment in the UAE and may be subject to UAE taxes on its income from business activities conducted through this branch office.
A Non-resident person has a Permanent establishment in the UAE in any of the following 3 instances:
When it has a fixed permanent place through which its business in full or part is conducted:
Example: A non-resident company from India has a physical office building in Dubai, UAE where it conducts its business activities such as sales, marketing, and customer service. This office building serves as a fixed permanent place and therefore, the non-resident company has a permanent establishment in the UAE.
When it has a person who habitually exercises authority to conduct business in its name:
Example: A non-resident company from the United States has a representative who resides in Abu Dhabi, UAE. This representative habitually exercises authority to negotiate contracts, sign deals, and represent the non-resident company in its business dealings in the UAE. The presence of this representative means that the non-resident company has a permanent establishment in the UAE.
Where it has any form of nexus which will be specified in a cabinet decision:
Example: We can find example on above once such decision will be published.
Article 14 defines that The Permanent Establishment shall exist if a Non-resident person has the following in the UAE.
- A place of management where management and commercial decisions that are necessary for the conduct of the Business are, in substance, made.
- A branch.
- An office.
- A factory.
- A workshop.
- Land, buildings and other real property.
- An installation or structure for the exploration of renewable or non-renewable natural resources.
- A mine, an oil or gas well, a quarry or any other place of extraction of natural resources, including
- vessels and structures used for the extraction of such resources.
- A building site, a construction project, or place of assembly or installation, or supervisory activities in connection therewith, but only if such site, project or activities, whether separately or together with other sites, projects or activities, last more than (6) six months, including connected activities that are conducted at the site or project by one or more Related Parties of the Non-Resident Person.
Exclusions from Permanent establishment:
Following will not be considered PE.
Storing, displaying or delivering of goods or merchandise belonging to that Person:
Example: A non-resident company from Germany has a warehouse in Sharjah, UAE where it stores its products before they are shipped to customers in the region. The warehouse is solely used for storing, displaying, and delivering goods, and the company does not conduct any other business activities from this location. In this case, the warehouse would not be considered a permanent establishment, as it is only used for the storage, display, and delivery of goods.
Keeping a stock of goods or merchandise belonging to that Person for the sole purpose of processing by another Person:
Example: A non-resident company from France has a branch office in Ajman, UAE that only keeps a stock of raw materials for the purpose of processing by another company.
The branch office does not conduct any business activities other than maintaining the stock of raw materials.
In this case, the branch office would not be considered a permanent establishment, as it is only used for the purpose of storing and processing goods by another company.
Purchasing goods or merchandise or collecting information for the Non-Resident Person:
Example: A non-resident company from Japan has a purchasing agent in Dubai, UAE who only purchases goods and collects information on behalf of the company.
The purchasing agent does not conduct any business activities other than purchasing goods and collecting information.
Conducting any other activity of a preparatory or auxiliary nature for the Non-Resident Person:
Example: A non-resident company from South Korea has a representative in Ras Al Khaimah, UAE who only conducts market research and provides support services to the company. The representative does not conduct any business.
In this case, the purchasing agent would not be considered a permanent establishment, as they are only conducting preparatory or auxiliary activities for the non-resident company.
The exclusions mentioned above, where a place will not be considered a permanent establishment, only apply if the activities conducted there are of a preparatory or auxiliary nature.
However, if the overall combination of activities carried out by the non-resident person and its related party at the same or different locations would form a cohesive business operation, even though they are fragmented, then the exclusions will not apply and the place will be considered a permanent establishment.
Example: A non-resident company from Australia has a representative in Fujairah, UAE who only conducts market research and provides support services.
However, the company also has a subsidiary in Dubai, UAE that manages its sales and marketing activities in the region. Although the representative in Fujairah is conducting preparatory or auxiliary activities, the combination of activities carried out by the representative and the subsidiary in Dubai would form a cohesive business operation, had the activities not been fragmented.
In this case, the exclusions mentioned above would not apply and the representative in Fujairah would be considered a permanent establishment.
Dependent agent:
A non-resident person is considered to have a permanent establishment in the UAE if they appoint a person who has the authority to conduct business or business activities on their behalf in the UAE.
Here are explanations and examples for the two conditions mentioned:
The Person habitually concludes contracts on behalf of the Non-Resident Person:
Example: A non-resident company from India has a sales representative in Abu Dhabi, UAE who regularly concludes sales contracts on behalf of the company.
The representative has the authority to sign contracts and close deals with customers in the UAE.
In this case, the representative would be considered as having and habitually exercising authority to conduct business in the UAE, and the non-resident company would have a permanent establishment in the UAE.
The Person habitually negotiates contracts that are concluded by the Non-Resident Person without the need for material modification by the Non-Resident Person:
Example: A non-resident company from Canada has a marketing manager in Dubai, UAE who regularly negotiates contracts with clients on behalf of the company.
The manager is authorized to negotiate the terms and conditions of the contracts, but the final contracts are signed by the non-resident company in Canada.
In this case, the marketing manager would be considered as having and habitually exercising authority to conduct business in the UAE, and the non-resident company would have a permanent establishment in the UAE.
In summary, if a non-resident company appoints a person in the UAE who has the authority to conduct business or business activities on their behalf, and that person regularly concludes or negotiates contracts on behalf of the company, then the non-resident company will have a permanent establishment in the UAE.
Independent Agent:
A non-resident person will not be considered to have a permanent establishment in the UAE if they appoint a person as an independent agent to conduct business or business activities on their behalf.
An independent agent is someone who acts on behalf of another person, but is not directly controlled or managed by them and operates in a way that is consistent with their own interests.
However, there are two exceptions to this rule:
- The person acts exclusively or almost exclusively on behalf of the non-resident person.
- The person cannot be considered legally or economically independent from the non-resident person.
Example: A non-resident company from France has a distributor in Sharjah, UAE who sells its products in the region. The distributor operates independently and has its own staff, customers, and resources.
The non-resident company does not control the distributor’s operations and the distributor is free to sell products from other companies as well.
In this case, the distributor would be considered as an independent agent and the non-resident company would not have a permanent establishment in the UAE.
However, if the distributor only sells the non-resident company’s products and is exclusively or almost exclusively dependent on the non-resident company for its business,
then the exclusion would not apply and the non-resident company would be considered to have a permanent establishment in the UAE. Additionally,
if the distributor is not legally or economically independent from the non-resident company, for example if they have common ownership or control,
then the exclusion would also not apply and the non-resident company would have a permanent establishment in the UAE.
An investment manager who provides brokerage or investment management services in the UAE, and is subject to regulatory oversight by the competent authority in the UAE, will be considered an independent agent when acting on behalf of a non-resident person.
In order to be considered an independent agent, all of the following conditions must be met:
- The investment manager is engaged in the business of providing investment management or brokerage services.
- The investment manager is subject to regulatory oversight by the competent authority in the UAE.
- The transactions are carried out in the ordinary course of the investment manager’s business.
- The investment manager acts in an independent capacity in relation to the transactions.
- The investment manager transacts on an arm’s length basis with the non-resident person and receives due compensation for the provision of services.
- The investment manager is not the non-resident person’s representative in the UAE in relation to any other income or transaction that is subject to corporate tax for the same tax period.
- Any other conditions that may be prescribed by the cabinet, at the suggestion of the minister.
Example: A non-resident company from Germany hires an investment manager in Dubai, UAE to manage its investments in the region.
The investment manager is a licensed and regulated entity in the UAE and operates in the ordinary course of its business.
The investment manager acts independently in its dealings with the non-resident company and transacts on an arm’s length basis, receiving appropriate compensation for its services.
The investment manager is not the non-resident company’s representative in the UAE for any other income or transaction that is subject to corporate tax.
In this case, the investment manager would be considered an independent agent and the non-resident company would not have a permanent establishment in the UAE.
“State-sourced income” refers to income that is generated from sources within the UAE. This term is used in tax law to determine the extent to which a non-resident person is taxable in the UAE.
For example, if a foreign company sells goods to customers in the UAE, the income generated from these sales would be considered state-sourced income. The foreign company may then be subject to UAE taxes on this income, depending on the provisions of the UAE tax laws and any applicable tax treaties.
State-sourced income can also include rental income from property located in the UAE, dividends from UAE companies, or other forms of income generated from business activities conducted within the UAE.
State-sourced income is any income earned by a non-resident person that comes from the following sources:
From a resident person
From a non-resident person with a permanent establishment in the UAE
From activities, assets, or services located or performed in the UAE
From the sale of goods in the UAE
From providing services in the UAE
From contracts that are performed or benefitted in the UAE
From property located in the UAE
From selling shares in a resident person
From providing the use of intellectual or intangible property in the UAE
Interest income from
loans secured by property in the UAE
From resident
Government borrowers
Insurance or reinsurance premiums from
Insuring assets
Activities located in the UAE
Insuring resident persons.
