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Are you Covered?
Taxable Persons cover a variety of Persons, but there are different rules for juridical persons and natural persons determining who is within the scope of the Corporate Tax Law and on which basis they are subject to.
In summary, Corporate Tax applies to:
1. UAE juridical persons (including Free Zone Persons) such as private or public joint stock companies or limited liability companies that are incorporated or otherwise established or recognized under the applicable legislation in the UAE.
2. Non-UAE juridical persons that are incorporated outside the UAE but effectively managed and controlled in the UAE.
3. Natural persons (i.e., individuals) who conduct a Business or Business Activity in the UAE as per a Cabinet Decision to be issued in accordance with Article 11(6); and
4 .Non-resident persons that have a Permanent Establishment in the UAE or earn UAE-sourced income within the scope of Corporate Tax.
FTA recently issued a guide to assist in understanding the tax implications for a Non-resident person as per the provisions of the Corporate Tax Law.
Taxability of Non-Resident Person
Non-resident Natural Person Has a Permanent Establishment
Derived state Source Income
Non – Resident Juridical Person Has a Permanent Establishment
Derived state Source Income
Nexus in the UAE
Note: A Natural person who is a non-resident and who has turnover attributable to their permanent establishment that exceeds AED 1,000,000 with the Gregorian Calendar year will have to register for corporate tax purposes.
However, for a Juridical person that is a non-resident and who has a nexus (Immovable property also establishes nexus) in UAE and if they earn income from this Nexus then such person shall be treated as Taxable Person and subject to corporate tax in UAE.
Other parameters:
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Registration: |
Juridical Person: If NRP has a permanent establishment or a nexus in UAE. If only state sourced income is derived and this does not trigger PE than registration not required. Natural Person: Important to compute the turnover attributable to the PE in UAE. Threshold is AED 1 Million. |
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Rate of Tax |
No differentiation in the rates of taxes between a Resident and a Non- resident taxable person. Slabs are defined in Article 3 of the TAX Law.
However, if you have a branch operating in a free zone, one has to opt for a qualifying free zone, then the rates applicable to a Qualifying free zone person shall apply. |
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Taxable Income |
Taxable Income is calculated for a Tax Period on the basis of adequate, standalone Financial Statements prepared in accordance with accounting standards accepted in the UAE, adjusted as per the provisions of Article 20 of the Corporate Tax Law. |
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State Sourced Income |
Certain state sourced income, derived by NRP, that is not attributable to a Permanent Establishment, may be subject to withholding tax which currently is 0%. Important to refer to the Double Taxation Agreement here between 2 countries. |
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Small Business Relief |
SME relief is unavailable to Non-resident Persons, so registration is mandatory after threshold crosses AED 1 Million no benefit if its less than AED 3 Million turnover. |
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Residency Status |
Its important to understand the number of days a non-resident is present in UAE and the revenue derived earned from the same. Double taxation agreement exists or not between the countries and if NRP is resident in any other country. |
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Arm’s Length Principle |
A NRP must determine its Taxable Income which is attributable to a Permanent Establishment or nexus in the UAE. Attribution of income and expenditure to a Permanent Establishment should be based on the arm’s length principle and internationally accepted attribution methodologies as a NRP and its Permanent Establishment are considered to be Related Parties |
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Record Keeping |
Must maintain all records and documents for a period of 7 years following the end of the Tax Period to which they relate |
• NRP = Non- Resident Person
• PE = Permanent Establishment
Conclusion:
Analysis whether a Non-Resident Person has a Permanent Establishment in the UAE is a fact and context specific exercise now. Additionally, even if a Non- Resident Person does not have a Permanent Establishment in the UAE, it should consider if it has nexus in the UAE, as this would make it subject to Corporate Tax in the UAE.
Double Taxation Agreements should be considered when determining the existence of Permanent Establishments where these agreements are effective and signed between the UAE and jurisdiction of the relevant party(ies).
Disclaimer: The content on this website is provided for general informational purposes only. It is not intended as professional advice and should not be construed as such. The information is based on the knowledge and experience available at the time of writing and is subject to change.
