Corporate tax applicability on Non-Resident Taxable Person
A juridical person who is not a resident person is subject to corporate tax if it either:
- has a Permanent Establishment in the UAE; or
- derives State Sourced Income (subject to a 0% Withholding Tax); or
- earns income from Immovable Property in the UAE
1. Non-Resident Person with a Permanent Establishment in the UAE
Generally, a country can only impose taxes on the earnings of a foreign business if that business has a permanent establishment in that country.
A Non-Resident Person may have a Permanent Establishment in the UAE if:
- they conduct a Business through a fixed or permanent place in the UAE.
Eg. an office, a factory or a building site lasting for more than 6 months where the Business is wholly or partly conducted; or
- another Person has and habitually exercises an authority to conduct a Business or Business Activity in the UAE on behalf of the Non-Resident Person.
Eg. where a Business regularly sends out sales representatives to the UAE who agree and sign contracts in the UAE
2. Preparatory and auxiliary activities
Preparatory or auxiliary activities are those performed in support of more substantive Business Activities of the foreign entity. Eg: storage, display or delivery of goods or merchandise belonging to the foreign entity, limited marketing and promotional activities, performing market research and attending seminars or conventions.
A Non-Resident Person is not considered to have a Permanent Establishment in the UAE if the activities conducted through the fixed place of business are of a preparatory and auxiliary nature.
The mere physical presence of a natural person in the UAE will not automatically create a Permanent Establishment for a Non-Resident Person where all of the following conditions are met:
- The presence of the natural person in the UAE is a consequence of exceptional circumstances of a public or private nature and the exceptional circumstances cannot reasonably be predicted by the natural person or the Non-Resident Person.
- The natural person did not express any intention to remain in the UAE when the exceptional circumstances end.
- The Non-Resident Person does not have a Permanent Establishment in the UAE before the occurrence of the exceptional circumstances.
- The Non-Resident Person did not consider that the natural person is creating a Permanent Establishment or deriving income in the UAE as per the tax legislation applicable in other jurisdictions.
3. Non-Resident Person that derives State Sourced Income
Any Person that is a Non-Resident Person and receives State Sourced Income is subject to Corporate Tax on this income by way of Withholding Tax.
Income is considered to be State Sourced if:
- it is derived from a Resident Person; or
- it is derived from a Non-Resident with a Permanent Establishment in the UAE; or
- it is derived from activities or contracts performed in the UAE, assets located in the UAE, capital invested, rights used, or services performed or benefitted from in the UAE.
Eg. where a Non-Resident Person earns State Sourced Income only and where this income is not attributable to a Permanent Establishment in the UAE, the income is currently subject to a 0% Withholding Tax. Practically, this means no Corporate Tax liability arises in this situation.
4. Non-resident juridical person that has a nexus in the UAE (derives income from UAE Immovable Property)
When any Non-Resident juridical person earns income from Immovable Property in the UAE, the Non-Resident juridical person will have a nexus in the UAE and are subject to Corporate Tax on income attributable to the Immovable Property in the UAE.