With the introduction of corporate tax in the UAE, foreign businesses need to understand their obligations, as non-resident persons. Non-resident persons conducting business or earning income in the UAE must comply with various corporate tax requirements, as may be applicable to them. This article covers some of the key aspects and questions on the subject, offering insight into when and how non-residents are subject to UAE corporate tax, what are there obligations, examples to clarify the concepts.
Overview of UAE Corporate Tax for Non-Residents
The UAE has implemented corporate tax to align with international tax standards. Non-resident persons, broadly comprising of businesses that are not incorporated or based in the UAE, or not managed or controlled in the UAE , can still be subject to UAE corporate tax depending on their business activities, existence of a Permanent Establishment (PE) in the UAE, nexus in the UAE and the source of their income. Complying with UAE tax regulations is essential to avoid penalties.
Who is considered a non-resident person under UAE corporate tax law ?
A non-resident person is any business or entity, which is not established in the UAE. A non-resident may still be subject to corporate tax, if they earn income from a nexus in the UAE or operate through a Permanent Establishment in the UAE.
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When is a non-resident liable to pay UAE corporate tax?
A non-resident becomes liable to pay corporate tax if they have a PE in the UAE or derive income from sources within the UAE which are related to the UAE. Common examples include having a branch, office, or dependent agents concluding contracts in the UAE on behalf of the non-resident.
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What types of income earned by a non-resident are subject to UAE corporate tax ?
Non-residents are taxed on income sourced from the UAE, which is connected with the PE or they have a PE or a nexus in the UAE. This includes income from business activities, property leases, royalties, or service agreements where the benefit is consumed within the UAE. Passive income like dividends or interest may be exempt if not tied to a PE.
How does a Permanent Establishment (PE) impact corporate tax for non-residents?
A non-resident creates a PE in the UAE if they have a fixed place of business, such as an office or factory, or if they have an agent that habitually concludes contracts on their behalf. The PE concept is crucial as it determines tax liability in the UAE.
What reporting requirements do non-residents have for UAE corporate tax?
Non-resident persons with a PE or UAE-sourced income or income from nexus in UAE may be required to file corporate tax returns and maintain financial records. They must report their taxable income and calculate corporate tax liability based on the 9% tax rate.
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Can non-residents claim deductions on UAE-sourced income ?
Yes, non-residents can claim deductions for expenses directly related to the generation of UAE-sourced income arising from a PE. These deductions reduce the taxable income and, subsequently, the corporate tax liability.
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Are there any withholding tax obligations for non-residents?
Currently, the UAE does not impose withholding tax on payments made to non-residents. However, non-residents may still need to report their UAE-sourced taxable income accurately and comply with corporate tax regulations.
What happens if a non-resident fails to comply with UAE tax requirements?
Failure to comply with UAE corporate tax obligations, including not filing returns or underreporting income, may result in penalties, fines, and additional tax assessments.
Does double taxation apply to non-residents in the UAE ?
Non-residents can benefit from double taxation agreements (DTAs) that the UAE has signed with various countries. These treaties may offer relief by preventing the same income from being taxed in both the UAE and the resident country.
Case Study 1: Local UAE Company (Emirates Supplies LLC)
Emirates Supplies LLC, a local UAE company, sources manufacturing equipment from a UK-based supplier. The UK supplier does not have an office or agent in the UAE, but sends engineers to supervise installation for a period of 5 days. Since the UK company does not maintain a fixed place of business or sign contracts in the UAE, it avoids creating a PE and is not liable for UAE corporate tax. However, depending on the extended duration of stay of employees, a PE may be created.
Case Study 2: Foreign Company (GlobalTech Inc.)
GlobalTech Inc., a US-based IT company, provides software services to UAE businesses. Although they have no physical office in the UAE, they hire a UAE agent who regularly concludes contracts on their behalf. This creates a PE, making GlobalTech Inc. liable for UAE corporate tax on income earned from UAE clients.
Conclusion
- Non-residents may be subject to corporate tax if they create a PE or earn income from a nexus in the UAE or earn UAE-sourced income.
- UAE corporate tax applies to business, service, and property income.
- Double taxation relief may be available through international treaties.
- Failure to comply with UAE tax regulations can result in penalties.
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FAQs : –
Q: What is the corporate tax rate for non-residents in the UAE ?
Non-residents are subject to a 9% corporate tax rate on their UAE-sourced income or income earned through a PE.
Q: Can a non-resident avoid corporate tax in the UAE ?
Non-residents can avoid tax if they do not create a PE and their activities in the UAE are limited to preparatory or auxiliary functions.
Q: Are there any exemptions for non-residents under UAE corporate tax law ?
Yes, passive income such as dividends, interest, and royalties may be exempt from UAE corporate tax unless it is connected to a PE.
Check out our Other Article on Permanent Establishment :- : https://sortingtax.ae/what-income-of-a…e-tax-in-the-uae/
