Over the past few years, the United Arab Emirates (UAE) has established itself as a global economic powerhouse, attracting businesses from around the world looking to establish a presence in the region. In this dynamic landscape of international commerce, it is crucial for foreign companies planning to set up permanent establishments (PEs) in the UAE to comprehend the tax implications associated with their decision, particularly the intricacies of corporate tax, in order to comply with the country’s regulatory standards. In this article, we delve into the impact of corporate tax on businesses with a PE in the UAE, shedding light on its key aspects and consequences.

Permanent Establishment

A permanent establishment (PE) is a legal concept that mandates foreign companies to register for corporate tax. A PE is created when a non-resident company engages in business activities through a fixed place of business located within the UAE. This includes physical spaces such as offices, warehouses, factories, and even construction sites where business activities have taken place for more than six months.

Installations and structures used in the exploration of natural resources, as well as mines, oil or gas wells, quarries, and other extraction sites, established by non-resident entities are also considered PEs. Once registered, the income earned by such a permanent establishment becomes subject to corporate tax.

Exclusions from the Definition of Permanent Establishment
According to the Corporate Tax (CT) Law, the term “permanent establishment” does not include:

  1. The use of a facility or fixed place solely for the storage, display, or delivery of a company’s merchandise.
  2. The use of a facility for the maintenance of a company’s merchandise for the purpose of processing by another enterprise.
  3. The use of a facility for the purpose of purchasing goods or collecting information for the enterprise.
  4. The use of a facility to undertake supportive or secondary activities for the enterprise.

Provisions of the CT Law Regarding Permanent Establishments of Foreign Companies in the UAE

The following provisions are essential under the UAE’s corporate tax law concerning Permanent Establishments:

A foreign person or non-resident entity is considered to have a PE in the UAE if:
a. It owns at least one permanent or fixed location in the country to operate its business.
b. A resident person has the authority to operate a business on behalf of a non-resident foreign individual.
c. It owns any other partnerships or connections as mentioned in other Cabinet Decisions, if not in Federal Decree-Law no. 47.

Foreign companies with permanent establishments in the UAE are required to comply with tax obligations to ensure they meet the tax requisites set by the corporate tax law.

Corporate Tax Calculation for Foreign Companies

Under the corporate tax regime, foreign companies with PEs in the UAE are subject to a corporate tax rate of 9% on annual taxable income exceeding AED 375,000 derived from UAE business operations, including services provided, goods produced or sold, property rentals, etc. These non-resident entities must register for corporate tax and file tax returns within 120 days of the end of the financial year.

To accurately calculate corporate tax, companies must carefully assess their net profits before tax while considering applicable deductions. These deductions, supported by proper documentation such as invoices and receipts, can include donations, operational expenses, and tax credits. These deductions can help alleviate the corporate tax burden for companies.

It is advisable and essential to seek the services of top tax consultants such as ProAct Chartered Accountants. These experts possess in-depth knowledge of local tax laws and regulations, enabling them to guide businesses through the process of complying with their tax obligations. By leveraging their expertise, businesses can successfully navigate these changes while capitalizing on the global opportunities that the UAE continues to offer.

Contact ProAct Chartered Accountants for more information. We are happy to assist.