Introduction
A Non-Resident is one who has a Permanent Establishment in the UAE or derives UAE-sourced income or has a nexus in the UAE as per the Cabinet under the UAE Corporate Tax Law. In furtherance of that, the Cabinet has issued a decision regarding what will constitute as nexus with the UAE under the UAE Corporate Tax Law.
How will be the ‘Nexus in the UAE’ determined?
If a juridical person who is a Non-Resident Person earns revenue from any immovable property located within the UAE, then, they will be considered to have a nexus in the UAE. This suggests that non-resident entities earning money from immovable property in the UAE will have to pay tax under the UAE Corporate Tax Law.
What is an Immovable Property?
Immovable property means any of these:
- Area of land over which interest, rights, or services can be created
- Buildings, structures, or engineering work that are permanently affixed to the land or seabed
- Fixtures or equipment that is a permanent component of the land or permanently affixed to buildings, structures, or engineering work or attached to the seabed.
What is Taxable Income that can be attributed to Immovable Property?
The Taxable Income that can be attributed to the immovable property in the UAE includes income from:
- Rights in rem,
- Sale,
- Disposition,
- Assignment,
- Direct use, letting (including subletting), and
- Any other form of exploitation of immovable property.
Artificial Transfer of Rights in Immovable Property
The provision of Artificial Transfer of Rights in Immovable Property addresses the need to curb potential tax evasion practices.
It shall be considered an agreement to seek a Corporate Tax Advantage (under Article 50 of the UAE Corporate Tax Law) if a Non-Resident Person artificially transfers or disposes of its right in rem in any Immovable Property to another person and the transfer is not for:
- Valid commercial or
- Non-fiscal reasons reflect economic reality.
This clause forbids artificial transactions made only to lower tax obligations.
The requirement to register for UAE Corporate Tax
A Non-Resident Person who has a nexus in the UAE is also required to register with the Federal Tax Authority (FTA) in accordance with Article 51 of the UAE Corporate Tax Law. By doing this, it is ensured that Non-Resident entities that meet the nexus requirements uphold their commitments and pay their fair share of taxes.
Implementing Decisions for Nexus in the UAE
The Minister has the authority to make the required decisions in order to carry out the various provisions stated in the Decree-Law. This will make it easier to apply and enforce the legislation effectively and ensure that its intended goals are realized.
Conclusion for Nexus in the UAE
The decision by Cabinet improves transparency, stops tax evasion, and ensures that Non-Resident Persons having nexus in the UAE pay their fair contribution towards the nation’s economic prosperity by defining terms clearly and laying forth obligations.
Are you unsure if you have ‘Nexus in the UAE’? Contact us today.
FAQs
1. What qualifies as a nexus for a Non-Resident Person according to the Corporate Tax Law?
The Corporate Tax Law states that a non-resident person has a nexus in the state if they receive income from the immovable property there.
2. What actions or dealings are taken into account when calculating the Taxable Income from immovable property?
Activities like rights in rem, sales, disposals, assignments, direct uses, lettings, subletting, and any other type of property exploitation are all taken into account when calculating Taxable Income from immovable property.
3. What exactly qualifies as an artificial transfer of immovable property rights?
A Non-Resident person’s transfer or disposition of their right in rem in the property without a legitimate commercial or non-fiscal cause that reflects economic reality is referred to as an artificial transfer of rights in immovable property.
4. When does a transfer or disposition of immovable property rights turn into a Corporate Tax Advantage?
A transfer or disposal of rights in immovable property constitutes an arrangement to get a Corporate Tax Advantage when it isn’t for a valid commercial or other non-fiscal reason which reflects economic reality.
5. Which Non-Resident individuals are obliged to register with the state for corporate tax purposes?
Non-Resident Persons must register for Corporate Tax if they have a nexus in the State, as defined by the Corporate Tax Law.
6. What is the registration requirement for Non-Residents with a nexus in the UAE?
Article 4 of the Decision mandates that Non-Residents who have a connection to the UAE in accordance with Article 2 must register with the FTA in accordance with the registration requirements outlined in Article 51 of the UAE Corporate Tax Law.
