Taxable Non-Resident Persons in the UAE9 min read
- 27.10.2023
- Posted by: Uwe Hohmann
- Categories: Accounting, Dubai, Tax
The United Arab Emirates (UAE) has been gaining significant attention as a global business hub, attracting individuals and companies from all corners of the world. This economic appeal has prompted the UAE to implement a Corporate Tax regime that includes provisions for non-resident individuals and juridical persons, commonly referred to as Non-Resident Persons. This article will explore the key aspects of Taxable Non-Resident Persons in the UAE, focusing on who they are, when they become subject to Corporate Income Tax (CIT), and the taxation of state-sourced income.
When is a Non-Resident Person subject to Corporate Income Tax?
Under the UAE’s Corporate Tax Law, a Non-Resident Person can be broadly defined as a natural person or juridical entity that is not a Resident Person.
Under the UAE CIT Regime a resident person is a natural person (if they conduct a Business or Business Activity in the UAE) or a juridical person if it is incorporated or otherwise established or recognised in the UAE or is incorporated or otherwise established or recognised outside the UAE but effectively managed and controlled in the UAE. If a person or entity does not meet these characteristics, they are non-residents. It’s important to note that not all non-resident persons are subject to Corporate Tax in the UAE. Only those Non-Resident Persons who meet specific criteria are subject to Corporate Tax:
Natural Persons:
A natural person becomes a taxable Non-Resident Person if they have a Permanent Establishment in the UAE and their Turnover attributable to that Permanent Establishment exceeds AED 1,000,000 within a Gregorian calendar year.
Alternatively, if they derive State Sourced Income (income accruing in, or derived from, the UAE), they also fall under the category of taxable Non-Resident Persons.
Juridical Persons:
Juridical persons incorporated or formed outside the UAE become taxable Non-Resident Persons and must register for Corporate Tax purposes and obtain a Tax Registration Number if they:
Have a Permanent Establishment in the UAE.
Derive State Sourced Income from the UAE.
Have a nexus in the UAE (applicable only to a Non-Resident Person that is a juridical person).
The concept of “nexus” arises when the Non-Resident juridical person earns income from immovable property in the UAE.
It’s essential for both natural and juridical persons to register for Corporate Tax purposes as soon as the above-mentioned conditions are met to avoid any compliance delays that may result in administrative penalties.
What Income of a Taxable Non-Resident Person is Subject to Corporate Tax in the UAE?
Income that is attributable to a Non-Resident Person’s Permanent Establishment or nexus in the UAE is subject to Corporate Tax. The Corporate Tax rate for such income is as follows:
0% on the first AED 375,000 of Taxable Income.
9% on the amount exceeding AED 375,000 of Taxable Income.
If the Taxable Non-Resident Person is a Qualifying Free Zone Person, they may be subject to different tax rates, such as 0% on Qualifying Income and 9% on Taxable Income that is not Qualifying Income.
Income attributable to a Permanent Establishment can be derived from both inside the UAE and outside from the state of origin. Income attributable to a nexus pertains to income derived by a Non-Resident Juridical Person from immovable property in the UAE.
State-Sourced Income and CIT for Non-Resident Persons
State Sourced Income is a critical factor when determining CIT for Non-Resident Persons in the UAE. State Sourced Income encompasses various scenarios:
Income derived from a Resident Person.
Income derived from a Non-Resident Person, provided it is paid or accrued in connection with, and attributable to, a Permanent Establishment of that Non-Resident Person in the UAE.
Income accrued in or derived from activities performed, assets located, capital invested, rights used, services performed, or benefitted from in the UAE.
State (UAE) Sourced Income is not limited to a single category; it includes various forms of income, such as income from the sale of goods, services, contracts, movable or immovable property, shares or capital rights, intellectual or intangible property, interest, and insurance premiums.
It’s important to note that certain State Sourced Income, derived by a Non-Resident Person and not attributable to a Permanent Establishment, may be subject to Withholding Tax, which is currently levied at a rate of 0%.
Other UAE Corporate Tax Requirements for Non-Resident Persons
Beyond the definition, registration, and taxation of Non-Resident Persons, there are additional requirements and obligations:
– Taxable Non-Resident Persons must maintain records and documents for a period of seven years following the end of the relevant Tax Period.
-Taxable Non-Resident Persons must determine their Taxable Income, which is attributable to a Permanent Establishment or nexus in the UAE. Attribution of income and expenditure to a Permanent Establishment should follow the arm’s length principle and internationally accepted attribution methodologies.
-Taxable Non-Resident Persons must file a Tax Return with the UAE Federal Tax Authority (FTA) and settle the Corporate Tax payable, following the same timelines and procedures as Resident Persons.
-The standard Tax Period is the Gregorian calendar year, but specific cases allow for extensions or adjustments with FTA approval.
How TME Legal Consultants Can Support Your Business
In conclusion, understanding the regulations surrounding Non-Resident Persons in the UAE is crucial for individuals and entities considering business activities within the country. Proper registration, taxation of relevant income, and compliance with Double Taxation Agreements are vital to navigating the UAE’s tax landscape effectively. Non-Resident Persons should also keep thorough records and maintain compliance with the Corporate Tax Law to ensure they meet all regulatory requirements.
TME Legal Consultants is a team of 45 professionals in the field of legal-, tax-, accounting and compliance with over 18 years of experience. We advised a significant number of SMEs in the context of the implementation of the tax framework in the UAE and KSA over the last decade to make sure that our clients are well oriented in the new and fast evolving tax landscape and to reduce the legal liability of managers which may arise in connection with non-compliance.
