Taxation of non-residents with UAE-based business7 min read
- Posted by: Uwe Hohmann
- Categories: Dubai, Tax
Can non-residents with UAE business activity be taxed?
Non-residents who engage in business activities in the UAE can be subject to corporate tax under certain conditions. According to the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, non-residents are taxed in the UAE on income attributable to a permanent establishment in the UAE. A permanent establishment is generally defined as a fixed place of business through which the business of an enterprise is wholly or partly carried on.
This means that if a non-resident entity has a physical presence or certain forms of business establishments in the UAE, such as an office, branch, factory, or workshop, the income attributable to these establishments may be subject to corporate tax. Additionally, non-residents may also be taxed on income arising from certain activities performed in the UAE, even in the absence of a permanent establishment, as specified under UAE tax law.
Taxation of Non-Residents in the UAE
Non-residents conducting business in the UAE are subject to corporate tax on income that can be attributed to a permanent establishment in the UAE. A permanent establishment generally refers to a fixed place of business through which the business of an enterprise is wholly or partly carried on.
Fixed Place of Business: This includes places such as an office, factory, workshop, or any other fixed facility where the company conducts its business.
Dependent Agent: If a non-resident has a dependent agent in the UAE who has, and habitually exercises, an authority to conclude contracts on behalf of the non-resident, this can also constitute a permanent establishment.
Construction Projects: If a non-resident is involved in a construction, assembly, or installation project in the UAE that lasts for a certain period (usually specified in the tax law), this could be considered a permanent establishment.
Service Activities: Providing services in the UAE (including consultancy services) through employees or other personnel, if such activities continue for a certain period within a financial year, may also create a permanent establishment.
Let’s think of a company based in Germany, “ABC GmbH,” which specializes in engineering consultancy. ABC GmbH secures a contract with a UAE-based company to provide engineering consulting services for a project in Dubai. ABC GmbH sends a team to Dubai, and they set up a temporary office there. The team works on the project in Dubai for 9 months.
In this scenario, ABC GmbH would likely have a permanent establishment in the UAE due to its physical presence and project duration. The income attributable to the activities carried out through this temporary office in Dubai would be subject to corporate tax in the UAE.
Calculation of Taxable Income
The taxable income of a non-resident’s permanent establishment is calculated based on the income attributable to the activities of the establishment in the UAE. It involves determining the revenues generated from the UAE activities and deducting allowable expenses incurred in generating these revenues.
Compliance and Reporting
Non-residents with a permanent establishment in the UAE are required to comply with UAE tax laws, which include registering for tax purposes, maintaining proper financial records, and filing corporate tax returns.
How TME Services Can Support
Non-resident businesses should carefully assess their activities in the UAE to determine if they constitute a permanent establishment and understand their consequent tax obligations.
TME Services is a team of 45 professionals in 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.