Corporate Tax for Foreign Companies that have Permanent Establishments in the UAE

In recent years, the United Arab Emirates (UAE) has emerged as a powerhouse in the global economy, attracting businesses from all over the world who are seeking to establish a foothold in the region. In this ever-evolving landscape of global commerce, international companies that are planning to set up permanent establishments (PEs) in the UAE need to understand the tax implications associated with their decision, especially the intricacies of corporate tax, to be in line with the country’s regulatory standards. In this blog, we delve into the impact of corporate tax on businesses with a PE in the UAE, shedding light on its key aspects and implications.

What is a “Permanent Establishment”?

A permanent establishment (PE) is a legal concept under which foreign companies are required to obtain corporate tax registration. A PE is created when a non-resident company engages in business activities through a fixed place of business located within the UAE. This encompasses physical spaces like offices, warehouses, factories, and even construction sites where business activities have been carried out 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 places of extraction of natural resources formed by a non-resident person, will also be considered PEs. Once registered, income earned by such a permanent establishment would be subject to corporate tax. 

According to the CT Law, the term "permanent establishment" does not include:

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

Provisions of the CT Law Regarding Permanent Establishment in the UAE of Foreign companies

The following are the vital provisions of the corporate tax law in the UAE regarding a Permanent Establishment;

A foreign person or non-resident entity is considered to have a PE in UAE -

• if it owns at least one permanent or fixed location in the country for operating its business.
• if a resident person holds the authority to operate a business on behalf of a foreign individual who is a non-resident.
• if it owns any other partnerships or connections that are mentioned in other Cabinet Decisions, if not in Federal Decree-Law no. 47.

The UAE corporate tax law implements tax requisites for all entities with a permanent establishment (PE) in the land. Thus, such corporations must understand their tax liabilities to avoid non-compliance.

In simple terms, the permanent establishments of the foreign entities held for the purposes of earning sources of income through business operations come under the purview of the Corporate Tax and are subjected to identifying the CT liabilities in advance to ensure compliance of the firm in UAE.

Calculation of Corporate Tax for foreign companies

Under the corporate tax regime, foreign companies having a PE in the UAE will be subject to the corporate tax rate of 9% on annual taxable income exceeding AED 375,000 attributable to UAE business operations and activities such as service provision, goods production or sale, property rentals, etc. These non-resident entities are required to register for corporate tax and file tax returns within 120 days of the end of the financial year.

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

Navigating the complexities of corporate tax and ensuring compliance with the UAE corporate tax statute can be overwhelming for foreign businesses. Hence, seeking the services of top tax consultants such as CDA is not only advisable but also essential. These experts possess in-depth knowledge of local tax laws and regulations, enabling them to guide businesses through the process of complying with tax obligations. By employing their assistance, businesses can navigate these changes successfully while harnessing the global opportunities that the UAE continues to offer.

How can CDA help you?

Get your foreign company in UAE, highly qualified tax consultants who can assist you at every step of your business to stay complied with the tax policies of the land and identify accurate tax liabilities. Our team of experts not only provides you with mere services but also enables you to prosper and move in the right direction to increase the efficiency of your activities. Acquire robust accounting, auditing, and tax consultancy services just under one roof and give wings to your business with our team of experts at CDA. To explore more, approach us now.