The provisions of Corporate Tax Law (‘CT Law’), introduced in the UAE, defines ‘Taxable Persons’ for the purpose of Corporate Tax (‘CT’). As per the provisions of CT Law, CT in UAE is applicable not only to a Resident person in the UAE but also to specific Non-Resident Persons subject to certain conditions being satisfied.
Applicability to Non-Residents
Accordingly, if a Non-Resident person is a Taxable Person in the UAE, then the provisions of CT Law (including Tax Registration, filing of Tax Returns, etc.) will also apply to the Non-Resident Person on their taxable income in the UAE. FTA has also released a detailed guide on the taxability of Non-Residents in the UAE. The applicability of the provisions of CT Law to a Non-Residents are summarised below:
- A Non-Resident Person is considered to be a Taxable Person and is required to register for CT if:
|Natural Person||Juridical Person (Not effectively managed and controlled in UAE)|
|They have a Permanent Establishment (‘PE’) in the UAE and have a Turnover attributable to their PE that exceeds AED 1,000,000 within a Gregorian calendar year; or derives State Sourced Income, (i.e. income accruing in, or derived from, the UAE)||They have a PE in the UAE (i.e., a fixed place of business or other form of presence in the UAE); derive State Sourced Income (i.e., income accruing in, or derived from, the UAE); have a nexus in the UAE.|
- Taxable income of a Non-Resident Person is to be calculated on the basis of adequate Standalone Financial Statements and records must be maintained for a period of 7 years from the end of the relevant tax period. Attribution of income and expenses to a PE should be at ALP and internationally accepted attribution methodologies.
- Small Business Relief is not available to a Non-Resident Person. However, they can avail benefits under the respective Double Taxation Avoidance Agreements (‘DTAA’) as applicable.
The provisions of CT Law provide that a Non-Resident Person may have a PE in the UAE in any of the following instances:
- Where they have a fixed or permanent place in the State through which the Business of the Non-Resident Person, or any part thereof, is conducted. (Fixed place PE)
- Where a Person has and habitually exercises an authority to conduct a Business or Business Activity in the State on behalf of the Non-Resident Person. (Agency PE)
- Where they have any other form of nexus in the State as specified in a decision issued by the Cabinet at the suggestion of the Minister.
- The formation of the PE in the UAE will depend on the facts of each case and the activities conducted by the respective entity and therefore need to be analysed on a case-to-case basis. The CT Law and the Guide released for taxation of Non-Residents discusses various scenarios, in detail, on the formation of each of the respective types of PE in UAE, including the applicability of the DTAA provisions.
- A Person who is not a Resident Person in the UAE and derives income from the UAE should determine if the income qualifies as State-Sourced Income.
- There will not be a need for the Non-Resident Person to register for Corporate Tax if the State-Sourced Income they derive is not attributable to a UAE Permanent Establishment or a nexus in the UAE.
- However, state-sourced income, derived by a Non-Resident Person, that is not attributable to a PE, may be subject to withholding tax, which is currently levied at 0%.
- State-Sourced Income derived by a Non-Resident includes: –
- Income derived from a Resident Person
- Income derived from another Non-Resident to the extent that it is attributable to a business conducted by that other Non-Resident through a PE in UAE
- Income accrued or derived from activities performed, assets located, capital invested, rights used, or services performed from the UAE
Nexus in UAE
- The nexus concept does not apply to Natural Persons.
- A Juridical Non-Resident will be considered to have a nexus in the UAE if they derive income from immovable property in the UAE by way of sale, disposal, direct use, leasing, sub-leasing or any other form of exploitation of immovable property.
With Corporate Tax Law introduced in the UAE, it is important to ascertain the impact of the law and its applicability to all persons, including Non-Resident Persons in the UAE who may be impacted by abovementioned provisions. Further, the provisions applicable to Non-Residents are complex and need careful analysis to determine the applicability and compliance with the law.
AKW Consultants has a dedicated team of International and Corporate Tax experts who can help with seamless navigation through the complexities involved in the law. AKW can be a trusted corporate tax advisory partner to assist clients in determining the applicability of the provisions of the law and to comply with the same.
Source & References:
- Federal Decree Law No. 47 of 2022 on the Taxation of Corporations and Businesses
- Non-Resident Persons Corporate Tax Guide CTGNRP1 by FTA