Navigating the tax landscape as a non-resident individual or entity in the UAE requires a nuanced understanding of the concept of a permanent establishment (PE) and its implications for corporate tax obligations. This summary provides a comprehensive overview of these concepts and their significance in UAE taxation.
Definition of Non-Resident Person
As defined by UAE Corporate Tax (CT) Law, a non-resident person encompasses both natural persons and juridical entities. Non-resident natural persons are those without residency in the UAE but may have a PE or derive state-sourced income within the country. Meanwhile, non-resident juridical persons are entities incorporated outside the UAE but may have connections such as a PE, income sourced from the UAE, or involvement in immovable property transactions.
Determining nexus in UAE
The presence of a nexus in the UAE is a crucial determinant of tax liability for non-resident persons. Specifically, earning income from immovable property within the UAE establishes a nexus, necessitating registration with the Federal Tax Authority (FTA) and obtaining a Tax Registration Number.
Taxable income and corporate tax
Taxable income attributable to a PE or nexus in the UAE is subject to corporate tax. This includes income derived from both domestic and international sources, with calculations based on standalone financial statements prepared in accordance with UAE accounting standards. Non-resident individuals are subject to corporate tax if their annual turnover attributable to their PE in the UAE exceeds Dh1,000,000.
State sourced income
Section 13(1) of the Corporate Tax Law outlines criteria for identifying State Sourced Income, which is then subject to Corporate Tax if earned by a Non-Resident Person.
Determining permanent establishment
The concept of a permanent establishment serves as a cornerstone in assessing tax liability. Criteria for establishing a fixed place PE include the presence of a business location, its fixed nature, and the conduct of business activities through that location.
Types of permanent establishments
Fixed place PEs encompass various physical locations such as offices, factories, real property, and installations for natural resource exploration. Dependent agent PEs arise when an agent habitually exercises authority to conduct business on behalf of a non-resident entity.
Exemptions and exceptions
Certain preparatory or auxiliary activities do not constitute a PE. However, exceptions exist, and activities may be deemed a PE if they exceed the bounds of preparatory or auxiliary nature.
Tax requirements and anti-avoidance provisions
Non-resident persons must adhere to various tax requirements, including record-keeping, financial statement preparation, tax return submission, and settlement of corporate tax within specified time frames. Anti-avoidance provisions are in place to prevent misuse and fragmentation of business operations, ensuring compliance with tax regulations.
Conclusion
Understanding the nexus of non-resident persons in UAE taxation is essential for complying with tax obligations effectively. The UAE's tax framework aims to strike a balance between facilitating foreign investments and preventing tax evasion, emphasising the importance of adherence to regulatory requirements for all entities operating within its jurisdiction.
For more information on permanent establishment (PE) for a non-resident in the UAE and its implications, please contact us at info@well-tax.com.
