UAE Corporate Tax – Taxation of Non Residents
Introduction
Non – Resident’s income will be subject to corporate tax in UAE, only if : –
- Income of Non – Resident which is sourced in the UAE. ; or
- Non – Resident have a Permanent establishment in UAE and the income is derived from such Permanent Establishment
Let us look at each of these aspects in detail in the subsequent paragraph : –
UAE sourced income
This category would cover, the following types of income : –
Income Earned from a UAE resident person
If the income is earned from a UAE resident person, it shall be considered as a UAE sourced income. These incomes are usually are taxable at a fixed rate under the Tax Treaties, which may offer, certain additional advantages as well.
Illustration: ABC UAE LLC makes a payment of professional fees of AED 600 000 to a US company. In such a case, it can said that the professional fees is a UAE sourced income as it is earned from a person who is a UAE resident.
Payment attributable to UAE PE of a Non – Resident
Any payment attributable to a UAE Permanent Establishment of the foreign company, will be liable to UAE corporate tax.
Illustration: FCO2 is a tax residents of the USA. FCO2 has a UAE branch that constitutes a Permanent Establishment , and is providing services to a UAE company. The income of FCO2 attributable to its PE in the UAE will be considered as UAE sourced income.
Once the income is considered as being sourced in UAE, one needs to evaluate the provision of tax treaty between UAE and USA, to ascertain if the income is liable to tax in the UAE. The general rule is that if there is a tax treaty entered into between two countries, the provisions of those treaties would override the domestic tax provision, where such treaty provisions are more beneficial.
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Income from contracts
Income derived from activities or contracts performed in the UAE by the non-residents will be liable to tax in the UAE .
Example : – ABC is a foreign company based out of the USA, and it received a contract to provide consultancy services to MNC UAE. ABC USA deputed certain employees who stayed in the UAE and provided services to MNC UAE. ABC USA may not have PE in the UAE. However, if the activities or contracts are performed in the UAE, the employees who were staying in the hotel and providing services were based out of UAE and were performing the actions or the contracts in the UAE, such income will be considered as a UAE sourced income.
Assets located in the UAE
If there is some income from this asset or property located in the UAE, such income will be considered as income sourced from the UAE. Where the payment is made for usage of certain economic rights in the UAE it will be considered as UAE source of Income.
For example, a company derives certain rental income from property situated in the UAE. This is income from assets located in the UAE, and therefore it should be liable to tax in the UAE.
Similarly, where a Foreign Company, provides UAE LLC with the right to use the brand for which the UAE LLC pays brand royalty , such income would be liable to tax in the UAE.
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