If you are a foreign company engaged in business activities within the United Arab Emirates (UAE) and deriving income from the UAE, you may be subject to different tax rules depending on their legal structure and the nature of their activities.

• State Sourced Income: The UAE Corporate Tax Act recognizes different types of income derived from UAE sources, referred to as state sourced income.

• Registration on basis of Two Situations Based on Permanent Establishment (PE):

A. Having a Permanent Establishment (PE) in the UAE:

• • If your foreign company has a permanent establishment (PE) in the UAE and derives state sourced income, you are obligated to obtain a tax registration number under UAE Corporate Tax law.

B. Not Having a Permanent Establishment (PE) in the UAE:

• • Even if your foreign company is deriving state sourced income from the UAE, you are not under an obligation to obtain a tax registration number under the UAE Corporate Tax law if you do not have a permanent establishment (PE) in the UAE.

Key Point: The presence or absence of a permanent establishment (PE) in the UAE is a critical factor in determining the obligation to obtain a tax registration number under the UAE Corporate Tax law when deriving state sourced income.

Practical Case Study on Tax Registration for Foreign Company

Background: ABC Ltd. is a foreign manufacturing company that expanded its operations in the UAE. As they conduct business activities in the UAE, they have generated income that falls under the purview of the UAE Corporate Tax Act, specifically referred to as state sourced income. ABC Ltd. must determine their tax registration obligations in the UAE.

Company Status:

1. Nature of Business: ABC Ltd. specializes in the production of automotive components and has been operating in the UAE for the past two years.

2. Presence in the UAE: ABC Ltd. operates through a local subsidiary, ABC LLC, which owns and manages their manufacturing facility in the UAE.

Key Questions:

1. Does ABC Ltd. have a Permanent Establishment (PE) in the UAE?
2. What are the implications for tax registration if they do have a PE in the UAE?

Resolution:

1. Permanent Establishment (PE) Assessment: ABC Ltd. evaluates its presence in the UAE. They determine that their local subsidiary, ABC Middle East LLC, which owns and operates the manufacturing facility, qualifies as a Permanent Establishment (PE) under the UAE Corporate Tax Act.

2. Implications for Having a PE:

   • Since ABC International has a Permanent Establishment (PE) in the UAE and derives state sourced income, they are obligated to obtain a tax registration number under the UAE Corporate Tax law.
   • This registration allows them to comply with tax obligations related to the income generated within the UAE.

Conclusion:

In the case of ABC Ltd., their tax registration obligations in the UAE are determined by the existence of a Permanent Establishment (PE). Since they have a PE and derive state sourced income, they are required to obtain a tax registration number. This demonstrates the importance of understanding the specific tax regulations and obligations in the UAE, particularly in relation to state sourced income and the presence of a PE.